U.S. business challenges seen likely to persist

Labor, supply woes expected to continue in year’s 2nd half

The challenges playing out on U. S. factory floors from labor and supply shortages, transportation bottlenecks and the coronavirus looks likely to persist into the second half of the year.

That’s the message from the heads of lumber producers and makers of air conditioners to home builders and apparel manufacturers. Recent corporate earnings calls have been replete with mentions of cascading and inflationary effects that are hampering companies’ ability to meet demand.

Perhaps the best color was offered up by PPG Industries Inc.’s Michael McGarry. The paint maker’s chief executive officer described a day in the life of a plant manager in the middle of omicron:

“The toughest job in PPG right now is a plant manager,” McGarry said on PPG’s Jan. 21 earnings call. “They wake up in the morning, check their phone to see how many people call off sick, then they get to work. They go through the dock area to see how many trucks didn’t get picked up, and then they go to the receiving area and then find out what didn’t come in that was supposed to.

“And then they move it into the plant and the supply chain people are telling me that they’re going to have to make smaller batches because of lack of raw materials. And then the sales team is telling them, ‘oh, my God, if we don’t get paint out the door, here’s how many customers we’re going to impact.’ So, by the time they get to their desk, before they even have a morning meeting, they’ve had to overcome a number of issues.”

The lack of sufficient labor, along with job switching and recent omicron-related absences, is wreaking havoc on nearly every U.S. industry. The latest employment report on Friday showed that while the labor force participation rate — the share of Americans who are either working or looking for work — climbed in January, it’s still well below pre-pandemic levels.

The report, which also included the largest monthly increase in hourly pay since the end of 2020, suggested a further tightening in the job market that adds pressure on the Federal Reserve to raise rates. There was a decline in the number of people not in the labor force who wanted to work, as well as fewer people who didn’t look for a job because they were too discouraged.

Earlier in the week, the government reported 10.9 million vacant positions, just shy of a record.

Trane Technologies PLC is also facing the herculean task of balancing resilient demand with lingering supply shortages, shipping uncertainty and extended delivery times.

“This is a plant manager’s kind of nightmare,” Dave Regnery, CEO of the heating, ventilation and air conditioning systems manufacturer, said on a Jan. 31 earnings call.

The constraints on production are “very, very disruptive,” he said.

The company is rescheduling and rebalancing production lines as well as juggling existing inventories. Trane sees the capacity constraints easing in the second half of the year.

The disarray snowballs from industry to industry, including forest products producer Weyerhaeuser Co. and apparel maker VF Corp.

“There’s a real challenge in finding labor and that’s across the system,” Weyerhaeuser CEO Devin Stockfish said on a Jan. 28 earnings call. That includes finding truck drivers, logging contractors and employees to work in the mills. “That makes it challenging to really dramatically ramp up that production.”

Matt Puckett, chief financial officer at VF, said the logistics network is beset by congestion, labor shortages and equipment constraints. The bad news: it’s going to take a long time to untangle.

“We expect these logistics challenges will remain with us, throughout most, if not all of 2022,” Puckett said on a Jan. 28 earnings call for VF, whose brands include Dickies, North Face and Timberland apparel.