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Supply Chain by the Numbers
   
 

- Aug. 18, 2022

   
  Supply Chain by the Numbers for Aug.18, 2022
   
 

China has Its Factory Eyes on Mexico; Target Profits Crumble on Inventory Sell Off; US Manufacturing Rises in July; US Warehouse Vacancies at Record Lows

   
 
 
 
 

$606.3

 

That was the level of Chinese investment in Mexico in 2021, up 76% from the year before. That according to an article this week on the Nikkei Asia web site. Much of this money targets northern regions near the US border. For example, 18 deals were announced in the state of Nuevo Leon last year, compared with seven in 2020 and just one or two a year between 2015 and 2018, the state government says. What’s going on? Chinese manufacturers are looking to set up shop across the border from the US to circumvent tariffs imposed under the Trump administration and maintained by the president Biden. Many of the Chinese companies investing in Mexico are appliance and furniture makers. In 2018, the US added an additional 10% tariff on $200 billion worth of Chinese products - including refrigerators, air conditioners and furniture - and raised it to 25% in 2019. Now, Chinese appliance maker Hisense is investing $260 million to build a Mexican plant for exports headed to the US, with plans to mass-produce refrigerators there by the end of the year.

 
 
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90%

That’s about how much Q2 profits fell at Target stores versus a year ago, as announced this week in its quarterly earnings report. The big-box retailer missed Wall Street’s expectations by a wide margin, even after the company itself had earlier lowered guidance twice. One key factor in the poor profit performance: steep markdowns on unwanted merchandise. Target CFO Michael Fiddelke defended Target’s aggressive efforts to sell excess inventory. He said the retailer had to move swiftly, so it could clear up store clutter, prepare for the holidays and navigate an economic backdrop clouded by inflation. In recent months, Target has seen demand for apparel, home products and other categories fall dramatically.

 

 
 
 
 

102.3

That was the level of US manufacturing output in July, according to the monthly report from the Federal Reserve Bank issued Tuesday. That was up from 101.6 in June, and comes after two straight months of declines in the index. That may reduce fears of a weakness in the US manufacturing sector, though a measure of New York’s manufacturing activity fell sharply in mid-August. "New orders and shipments plunged, and unfilled orders declined,” the New York Fed said in its report. So who knows. With the national reading at 102.3, it means US manufacturing is only 2.3% above the baseline year of 2012 (index = 100), now some 10 years later. It is also well below the all-time high of about 110 set in late 2010.

 

 
 

2.9%

That was the record low US vacancy rate for industrial space – mostly warehouses – at the end of Q2. That rate was down from 3.4% in Q1, and 3.6% a year ago. That according to a new report from real estate firm CBRE. The report also found that currently there is a record 626 million square feet of industrial space under construction – due in part due to the long lead times for many materials that are extending build cycle times. But demand is even higher than this growing supply. All this is pushing lease rates higher. CBRE says commercial rents are up strong 14.9% versus a year ago – but even more in some markets. For example, rents in the Inland Empire area outside of Los Angeles are up an incredible 72.1% in the past year.

 
 
 
 
 
 
 
 
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