By Tim Courtney, Chief Investment Officer
Across the country supply chain disruptions have led to understocked stores and increased prices. Since 2020, businesses have made multiple course corrections as the economy has lurched backward, forward and sideways. Consumers and households have as well.
In an economy where supply chains were so finely tuned, it was inevitable that altering so many variables all at once would lead to disruptions. One in four people have quit their job this year as of October, and changes in consumer spending have affected supply and demand.1 Stimulus checks provided sudden boosts to household savings while vaccine mandates are changing the labor market. A focus on green and digital assets have left the market with at least temporary shortages of traditional energy, materials and food.
Many companies had been operating very efficient supply chains that were also relatively low cost, using a “just-in-time” inventory management system where they received just enough products and materials to fill immediate customer demand. These systems have failed with so many economic changes occurring and now businesses are over-ordering to ensure proper supply, which is also leading to shortages and price increases.
It was impossible to see how greatly these changes would have affected our system. Many who thought supply chains would have already returned to normal are now expecting the situation to remedy late next year.2 Companies in their quarterly reports are also saying challenges will last for many more quarters. Meanwhile, more discussions on policy changes could further disrupt the supply chain system and cause a ripple effect through the market.
Many companies will find a way to deal with these disruptions. The labor shortage makes finding solutions difficult, not only due to a lack of workers directly involved in transportation and the supply network, but also because companies are struggling to staff internal positions.
Prior to the pandemic, we had seen a long-term decline in unions, evidenced by the fact that only 10.8% of U.S. wage and salary workers were union members in 2020.3 But the broad layoffs of 2020 tested or eliminated the loyalty employees had for their employers and we may see increased unionization in the coming years. It is also likely that we see increasing automation as some companies who have found it impossible to fully re-staff reduce their reliance on labor.
As geo-political risks have grown over the last year, companies will also rethink their supply chains, many of which originate from so far away. In the near term these challenges are putting pressure on costs and profitability, and companies are often passing these cost increases on to consumers. Again, many companies will find the right combination of fixes in labor, automation, supply chains and price increases and will emerge healthier. However, it appears we’re still quarters away before this churn starts to subside.
1. CNBC (10/14/21) — 1 in 4 workers quit their job this year—here’s what companies are getting wrong about retention
2. CNBC (10/18/21) — Supply chain chaos is already hitting global growth. And it’s about to get worse
3. U.S. Bureau of Labor Statistics (1/22/21) — Union members summary
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