Almost unquenchable demand amplifying supply shortages
DETROIT — Take a step back from the picked-over store shelves, the stalled container ships and the empty auto showrooms, and you’ll find a root cause of the shortages of just about everything.
Even as the pandemic has dragged on, U.S. households flush with cash from stimulus checks, booming stock markets and enlarged home equity have felt like spending freely again. And since consumer demand drives much of the U.S. and global economies, high demand has brought goods shortages to the U.S. and much of the world.
Add the fact that companies are ordering — and hoarding — more goods and parts than they need so they don’t run out, and you end up with an almost unquenchable demand that is magnifying the supply shortages.
That’s where a big problem comes in: Suppliers were caught so flat-footed by how fast pent-up spending surged out of the recession that they probably won’t be able to catch up as long as demand remains so robust. That’s especially so because Americans, still hunkered down at home more than they did before the pandemic, continue to spend more on goods — electronics, furniture, appliances, sporting goods — than on services like hotels, meals out and movie tickets. All that demand for goods, in turn, is helping to accelerate U.S. inflation.
Unless spending snaps sharply back to services — or something else leads people to stop buying so much — it could take deep into 2022 or even 2023 before global supply chains regain some semblance of normalcy.
“Demand is completely skewed,” said Bindiya Vakil, CEO of Resilinc, a consulting firm that helps companies manage supply chains. “This has now become more and more painful by the day.”
Even a normal post-holiday shopping lull, isn’t expected to be enough to unclog ports, speed shipping traffic or allow factories to replenish inventories.
“The baseline expectation for improvement is around the middle of 2022,” said Oren Klachkin, lead U.S. economist for Oxford Economics. “But I think the risks of that happening later are fairly high.”
Since April 2020, consumer spending on goods has jumped 32 percent. It’s now 15 percent above where it was in February 2020, just before the pandemic paralyzed the economy. Goods account for roughly 40 percent of consumer spending now, up from 36 percent before the pandemic.
U.S. factories have tried mightily to keep up with demand. Production rose nearly 5 percent over the past year, according to the Federal Reserve, despite periodic ups and downs, including disruptions to auto production caused by chip shortages.
Imports have narrowed the gap between what America’s consumers want and what its factories can produce. From January through September this year, the U.S. imported 23 percent more than in the same period in 2020. In September, the U.S. posted a record deficit in goods trade: Imports topped exports by $98.2 billion.
At the same time, many U.S. workers have decided to quit jobs that had required frequent public contact. This created shortages of workers to unload ships, transport goods or staff retail shops.
Ports clogged up. Last month, 65 ships waited off the California coast to be unloaded at the ports of Los Angeles and Long Beach — two weeks’ worth of work.
The average wait : 12 days. That has since worsened to 78 ships, with an average wait of nearly 17 days, despite around-the-clock port operations beginning in October.
Before the pandemic, ships had set arrival times and went straight to a berth for unloading, said Gene Seroka, the L.A. port’s executive director.
Now, with Asian factory output at record highs, the port is moving record levels of goods. Yet it’s not enough to meet the demand.
Seroka doesn’t foresee the shipments easing even next year. Retailers have told him they plan to use the slower months of January and February — if they actually are slower — to replenish inventory.
As with ports, rail lines are moving more goods. Through early November, freight shipped by America’s railroads was up 7.5 percent from a year ago. Truck shipments were up 1.7 percent in September.