Container ships stretch far out into the Pacific, waiting for days for their turn to unload goods in California ports. Automakers shut down production because they can’t get enough of the computer chips that make a modern car run. Long-dormant restaurants are finally seeing a surge in customer demand, but they’re not finding enough chefs.
These are all headlines of the last few days, and they have one thing in common: they show how America’s great economic challenge has turned 180 degrees in a breathtakingly short time.
Just a few months ago, the nation was facing huge shortages of goods and services that threatened to prolong the pandemic-driven downturn well beyond the virus’s containment. The central economic problem of 2021 looks like the complete opposite. Businesses are increasingly challenged to produce an adequate supply of goods and services – be it lumber or cold beer – to meet this resurgent demand.
Huge parts of the economy were shut down last spring and are now being turned back on. However, with around three million Americans getting vaccinated every day and nearly $3 trillion in federal money flowing through the economy, it’s an open question how long it will take businesses to get up to speed. Their collective success or failure will determine whether this is a year of Goldilocks economic conditions or a frustrating mix of price spikes and ongoing shortages.
“The global economy is vulnerable because it never really recovered,” said Nada Sanders, professor of supply chain management at Northeastern University. “There’s massive consumer pent-up demand, but it’s important that supply and demand are connected because when there’s a supply shortage, you don’t have the products that consumers want.”
After massive disruptions over the past year, the intricate networks that keep major industries stocked and services available have frayed. Many workers have left the labor market. Global manufacturing and shipments have been temporarily suspended, followed by reopenings, causing disruptions that have exacerbated coincidental events of recent times, such as the Texas ice storms and the Suez Canal blockade.
Semiconductor companies curtailed making the chips destined for cars and trucks as major automakers curbed production in the early days of the pandemic. Semiconductor companies shifted to making chips needed for high-demand computers and other consumer electronics.
Understand inflation and how it affects you
The auto industry is now facing the delayed effects of this cut. Ford, for example, shut down the factory that makes its popular F-150 trucks for two weeks. Overall, analysts at IHS Markit are forecasting a million fewer vehicles to be manufactured in the first quarter of 2021 due to the disruptions. That means American consumers looking to put their new stimulus checks on a car may have fewer options and little impact on price.
Meanwhile, the labor market presents itself as a paradox. The unemployment rate is 6 percent, well above pre-pandemic levels, and the job market is even worse when you add in Americans who say they are no longer looking for work. Nevertheless, many employers, especially in the catering and related service industries, describe a labor shortage.
At Bibb Distributing Co., a distributor of Anheuser-Busch and other beers in Macon, Georgia, delivery drivers are so hard to find — and the demand for the product is high enough — that drivers have been asked to work overtime and managers have been hired Trucks, said Win Stewart, the chief executive officer.
“When I talk to other people in the market and try to figure out if it’s something we’re doing or if others are experiencing the same thing, all my conversations are the same,” Mr Stewart said. “We can’t find people.”
That could make things challenging if the summer goes as many expect, with a broader reopening of the economy as most people are vaccinated. The 85-person company already has 10 to 12 open positions, and signing bonuses are routinely offered to drivers to go elsewhere.
“I have a feeling demand will increase as concert venues and resorts open,” Mr Stewart said. “You’re going to see strong demand and I’m not sure you’ll have enough manpower to service it.”
There are different theories for the discrepancy between the data indicating a weak labor market and anecdotal reports of a strong labor market.
Many prospective workers may not be able or willing to accept work while they see health risks from the coronavirus or spend their time caring for children or elderly or disabled family members. Jed Kolko, Indeed chief economist and an Upshot contributor, calculated that the proportion of employed women aged 25-54 fell by 4.5 percentage points among mothers, compared to 3.4 percentage points among women without children.
That would mean that efforts to bring schools, day care centers and nursing homes back to full capacity will have important positive impacts on the economy’s supply potential – part of the Biden administration’s rationale for emphasizing spending on these areas in its pandemic rescue plan.
Another possible reason for the labor shortage is that the influx of federal money has made some people less motivated to work. Mr Stewart said five or six employees resigned in the days after the government sent out $1,400 stimulus checks and business leaders have argued expanded unemployment benefits could discourage people from returning to work.
However, that theory isn’t supported by research on previous rounds of expanded benefits, which found that a lack of job opportunities was a bigger factor in unemployment than people on unemployment benefits.
The combination of surges in demand and supply disruptions in the economy also has important global dimensions. Many companies depend on imports, including from countries that are far behind the United States in vaccinating their populations and, in some cases, are facing new outbreaks.
In addition, container ship congestion at the Port of Los Angeles and some other American ports, particularly on the West Coast, shows that the global trading system continued to be weighed down by the whiplash effect of last year’s closures followed by rising demand.
“There are companies that have changed the way they operate since before the pandemic and are more digital, and reopening is not that big of a deal for them,” said James Manyika, a partner at the McKinsey Global Institute, the consulting giant’s in-house research arm. “The problem is, that’s not the majority of companies, and those other companies will find that they are highly dependent on their ecosystems and their supply chains.”
In other words, you cannot turn off the global economy and then turn it on again and expect everything to go back to normal immediately. The question for 2021 is how slow this restart process turns out to be.
Comments are closed.