Americans are confronting a new challenge of having to wait and pay more for products. Supply chain woes have negatively impacted makers of everything from cars and clothing to home siding and medical needle containers.
Fed Chairman Jerome Powell said, “It is very possible that you will see bottlenecks emerge and then clear over time.” The consumer price index rose by 4.2% from April 2020 to April 2021.
In retrospect, what were the constraints that economists missed? They underestimated the supply side restrictions:
- The Labor Department reported job openings reached a series high of 8.1 million in April. For months, employers have complained that the federal $300 weekly jobless bonuses plus other transfer payments have made it difficult to hire. Many lower-income workers can make more staying at home than in the workplace. The Labor Department said that the average unemployment recipient earns better than the equivalent of working full time at $15 an hour.
- The demand for semiconductor chips has outstripped supply, causing shortages. Semiconductor chips have become the brains for “computers, cars, toothbrushes and tumble dryers.”
- The prices of raw materials are skyrocketing, outstripping demand. For example, steel, copper, corn and lumber have reached price levels not seen for years.
- China has contributed to the supply demand imbalance by reducing production of key metals such as steel and aluminum. During this same period, China has bought up massive amounts of grain and added to their inventories of semiconductors.
- California ports, which handle more than a third of U.S. container imports, remain swamped, causing delays in deliveries.
Glitch or trend? Supply-side challenges caused economic slowdown.
McKinsey noted that the U.S. has allocated $10 trillion toward fiscal stimulus, 10 times the amount spent during the financial crisis of 2008-09 to mitigate the pandemic’s economic impact. Their publication, “Survey: US consumer sentiment during the coronavirus crisis,” highlighted that more than half of U.S. consumers are enjoying record savings and expect to spend extra to treat themselves post COVID-19.
McKinsey found the following:
- Consumers intend to continue many digital behaviors such as restaurant curbside pickup;
- Increased use of digital health and wellness tools;
- Increased expenditures to make structural changes to their homes;
- More entertainment and out-of-town travel.
America’s healthy recovery has boosted consumption. The Economist stated that “American retailers’ inventories, relative to revenues, have plunged to all-time lows.” Research by Robin Brooks of the Institute of International Finance, a bankers’ association, found that American manufacturers have been raising their prices relative to their input costs.
Goldman Sachs disclosed that not since the mid-1970s have companies been so likely to report delays in supplier deliveries. IHS Market disclosed that manufacturers’ backlogs of work rose at a record rate in spring 2021.
The global chip shortage has impacted production, causing supply problems for millions of people. Analysts predict the demand for chips will outstrip supply for several years. Gartner, the world’s leading research and advisory company, told CNBC that the average person on the street has suffered. Gartner warned that this shortage will result in either higher prices or delays in delivery.
CNBC said that “the automotive sector is the hardest hit. Companies like Ford, Volkswagen and Jaguar Land Rover have shut down factories, laid off workers and slashed vehicle production.”
Bloomberg reported that car rental companies are “purchasing low-mileage, preowned vehicles from auctions and dealerships.” Historically, they purchased new vehicles.
COVID-19 reminded all of us what can be taken for granted — our sense of normalcy —is not necessarily normal at all. Similar to the victory celebrations after World War II, Americans post COVID-19 want to enjoy life. Instead of a sailor grabbing a nurse in order to kiss her, as symbolized by Sarasota’s “Unconditional Surrender” statue, our generation’s focus is on consumption. BB King summarized our mood — Let the Good Times Roll!
Originally published in the Sarasota Herald-Tribune