The “everything shortage,” born of the COVID calamity, likely will require another huge disruption before we get back to normal.
Why it matters: Product shortages, delays and corresponding price spikes have become a fact of life in America since the pandemic started. To end it, either demand has to go down — which could be rough — or supply has to go up, which means we’d have to wait it out.
The “everything shortage,” born of the COVID calamity, likely will require another huge disruption before we get back to normal.
Why it matters: Product shortages, delays and corresponding price spikes have become a fact of life in America since the pandemic started. To end it, either demand has to go down — which could be rough — or supply has to go up, which means we’d have to wait it out.
- The complexity of the crisis means there’s no easy answer — and no painless answer, either.
- “There’s no shortage of reasons why this supply chain crisis is occurring,” says Holly Wade, executive director of the National Federation of Independent Business Research Center. “It’s all intertwined.”
The two most likely scenarios for ending the crisis, according to experts and business leaders, are:
1. People stop buying so much stuff. And they will. At some point.
- “Nobody buys a new couch every single year,” says Josh Bivens, research director for the Economic Policy Institute.
- Americans have been binge-buying since the pandemic started. The rate of growth in spending on consumer goods and residential investment — measured as a percentage of GDP — remains at levels not seen since at least before 1955, according to the Bureau of Economic Analysis.
- The end of the pandemic could restore a healthy mix of spending on services and physical goods. “The shift of consumer demand has created all the tension in the system,” says Mohamed Kande, vice chair of PwC U.S.
2. Time passes. It might just take time for the supply chain to ramp up to make enough stuff to keep up with consumer demand.
- Case in point: Intel is building $20 billion chip factories in Ohio and Texas. But both will take a few more years to come online. Until then, the U.S. remains desperately reliant on foreign chips.
- Therein lies the silver lining in this crisis. Business executives say they’re embracing “onshoring” — relocating production from foreign markets back to the U.S.
- It makes it a lot easier to guarantee parts are available when they’re being made next door.
Between the lines: There’s a catch with both scenarios. For example, if people buy less stuff because inflation gets so out of control that they can’t afford things anymore, that’ll be even worse than our current situation.
- Alternatively, if the Federal Reserve gets so frustrated by inflation that it decides to raise interest rates exponentially, that could induce a recession.
- A recession would likely slash demand for goods — a development some economists say may be the fastest way to end the supply chain crisis.
- But a recession, of course, would likely involve job losses and could bring an end to the recent trend of wage increases.
And if we just wait it out, there’s a serious labor crisis that will have to be solved.
- Businesses want to rein in the complexity of their supply chains by making more parts in-house. Call this the Tesla model. CEO Elon Musk set the electric vehicle maker on a path to make its own batteries.
- But to make more things in America, you have to have enough workers to do it. Which we don’t have — because the pandemic has prompted millions of workers to enter early retirement and kept many away from positions that no longer seem fulfilling or worthwhile.
- That’s where robots may come in, as automation is expected to play an increasingly consequential role in places like warehouses and factories, according to Citigroup economists.
Our thought bubble: Solving the labor crisis would go a long way toward solving the supply chain crisis. More workers, more products. More products, fewer shortages and fewer delays.
- Some efforts are underway — such as a new federal rule allowing 18-year-olds to become apprentice truck drivers in a bid to ease the nation’s shortage of truck drivers.
The bottom line: We’ve come to the point where 18-year-old truck drivers may be one of the things we need to end this crisis.
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