Supply chain snarls and labor shortages are driving prices
higher and creating shortages as the economy struggles to adapt to a new phase
of the coronavirus pandemic.
After slashing prices and laying off workers at the onset of
COVID-19, manufacturers, suppliers and retailers have struggled for months to
meet the quick rebound in demand unleashed by unprecedented federal aid and
highly effective coronavirus vaccines.
Consumer prices rose 0.4% in September and 5.4% in the 12
months leading into it, according to data released Wednesday by the Labor
Department. Much of the September jump came from rising food, energy and
shelter prices — an economically challenging mix for Americans with tight
budgets and a politically toxic combination for President Biden and
Democrats.
Deepening backlogs at ports and worker shortages at nearly
every point in the supply chain have also left shelves depleted of popular products
— just as Americans begin planning out their holiday purchases.
“The demand is there. There's close to US$2 trillion in
savings sitting in household accounts, the American consumer is flush with cash
and ready to move back towards what we might consider normal modes of consumption,”
said Joe Brusuelas, Chief Economist at audit and tax firm RSM.
While the Biden administration is scrambling to ease the
problem, Brusuelas warned that only time will fully normalize supply lines.
“At this point there's not much that the federal government
can do to what can accurately be described as a behavioral shock,” he said.
Here’s what you need to know about the supply chain
challenges.
New habits die hard
Many economists believed the burst of inflation seen earlier
in the year would quickly fade as supply chains kicked back into gear and
workers came back into the labor force with the pandemic well under control.
But as the delta variant caused a global resurgence in COVID-19 cases, supply
chains buckled again while demand chugged along.
Brusuelas said that COVID-19 outbreaks in Northeast and Southeast
Asian shipping and manufacturing hubs caused shutdowns similar to those during
the onset of the pandemic in early 2020. Declines in energy production, as well
as port and factory closures driven by surging cases, have severely limited the
ability to meet recent demand.
“The issues around the supply chains are not driven
exclusively by consumption, but rather by ports that are not open 24 hours a
day, a lack of labor specifically within the trucking industry, to move goods
from ports to warehouses to stores, and the lack of labor and the warehouses
themselves, which are also not open 24 hours a day,” Brusuelas said.
Meanwhile, US consumers have continued to spend, but not evenly
across the economy.
While online stores, mega-retailers and furniture sales have
benefited from the delta-driven shift, surging cases made it difficult for
nearly every industry to hire enough workers to handle rising demand.
Employment growth fell from nearly one million jobs in July
to 366,000 in August and 194,000 in September, leaving businesses scrambling to
fill more than 10 million vacant positions. Though, some economists expected
the September lapse of federal unemployment benefits to fill the void, the
recent jobs report confirmed the pandemic’s inherent curb on the economy.
“These are all COVID-restriction related or COVID-disruption
related things, and until we let all of that work out, this is not going to go
away,” said Norbert Michel, a vice president at the Cato Institute, a
libertarian think tank.
Holiday shopping season at risk
The persistent supply chain issues and worker shortages are
not expected to be permanent features of the post-pandemic economy, but will
likely take several months to fix. That means Americans can expect to pay more
for their holiday spreads and have trouble finding certain gifts in time for
December celebrations.
“I know you’re hearing a lot about something called supply
chains and how hard it is to get a range of things from a toaster to sneakers
to bicycles to bedroom furniture,” Biden said in remarks Wednesday before
meeting with business and labor leaders.
“With the holidays coming up, you might be wondering if
gifts you planned to buy will arrive on time,” he said.
Analysts have stressed for months that Americans should
knock off their shopping lists quickly to ensure gifts will arrive by the
middle of December — and expect to pay more for them.
Chad Moutray, chief economist at the National Association of
Manufacturers, said some companies have even purchased their own ships or flown
in components of products to avert port backlogs and a lack of container space.
“All of that leads to higher prices. Much of that can be
passed on to the consumer, but the overall cost of production here is going up
pretty phenomenally, largely because of all the extra costs related to shipping
but also to being able to navigate some of these supply chain issues,” Moutray
said.
Food producers and suppliers have also boosted prices as
they struggle to work through a range of obstacles, including processing plant
closures, trucking shortages and volatility within the restaurant and bar
sector.
The consumer price index (CPI) for food rose 0.9 percent in
September, making up more than one-fourth of the total monthly increase in
inflation. The index for food at home rose 1.2 percent last month as prices for
basic staples rose sharply.
Meat, poultry and fish prices rose 2.2 percent in September,
with beef, bacon, ham and fresh fish rising by more than 2 percent each.
“Sometimes it's a processing issue, sometimes it's a labor
issue, sometimes it's an import issue — it's a variety of things as we sort of
recover from the pandemic and the shock that it provided globally to the food
system,” said Agriculture Secretary Tom Vilsack in a Tuesday interview
with WAMU, the NPR affiliate in Washington, DC.
“People were a little bit surprised at some of the increases
that they saw,” he continued. “I think we're going to see a moderation of that,
which is good. And from time to time there may be a shortage here or there, but
I don't think people can be prevented from being able to feed their families
nutritious food.”
Few easy fixes
Just hours before the release of the September inflation
data, the White House announced that Walmart, FedEx and UPS will increase
operations to 24 hours a day, seven days a week to keep goods moving. The
administration also said the Port of Los Angeles will adopt a similar schedule
and that labor leaders are willing to make sure enough workers are on the job
to handle the load.
Business groups are urging Congress to provide more funding
for job training programs and allow for more temporary visas to fill vacant
trucking jobs and other open positions. One of the best ways to make that
happen, they argue, is through the US$ one trillion bipartisan infrastructure
bill that would establish an advisory board to encourage women to enter the
trucking industry and set up an apprenticeship program for truck drivers under
the age of 21, in addition to revamping roads and bridges.
Others have called on Biden to activate the National Guard
to help alleviate supply chain congestion and incentivize states to use the
Guard or open up US Navy ports to help unload cargo.
Even so, economists and business groups say it could take
several months to see an impact on prices and shipping times as the country
adjusts to life amid the evolving pandemic.
“Individuals are reassessing their professional careers and
their lives following what is a shock that is equal to global wars or
depressions that we all know from history,” Brusuelas said.
“Until we achieve a level of confidence within the public
that they can go back to work, that they can go back to the stores, that they
can attend social events without the risk of contracting disease, we're just
going to be in this strange nether world where we're short of workers.”
