Supply shortages and emboldened workers: A changed economy
Employees at a fast-food restaurant in Sacramento, exasperated over working in stifling heat for low wages, demanded more pay and a new air conditioner — and got both.
Orders poured in to an Italian auto supplier, which struggled to get hold of enough supplies of everything from plastic to microchips to meet the demand.
A drought in Taiwan magnified a worldwide shortage of computer chips, so vital to auto and electronics production.
The global economy hadn’t experienced anything like this for decades. Maybe ever.
After years of ultra-low inflation, prices rocketed in 2021 — at the grocery store, the gasoline pump, the used-car lot, the furniture store.
U.S. workers, having struggled for years to achieve economic gains, demanded better wages, benefits and working conditions — and were willing to quit if they didn’t get them.
Global supply chains that ran efficiently for years broke down as factories, ports and freight yards buckled under the weight of surging orders.
Propelled by vast infusions of government aid and the widespread distribution of COVID-19 vaccines, the world economy’s bounce-back was as startling as the fall that preceded it. Policymakers were caught offguard by both the speed of the recovery and the new COVID-19 variants that threatened it.
Back from the brink
In the spring of 2020, the global economy stood at the brink of a catastrophe. The spread of COVID-19 forced lockdowns, frightened people into hunkering down at home, paralyzed ordinary business activity.
In June that year, the International Monetary Fund predicted that the global economy would shrink 4.9% in 2020.
But the governments of the wealthiest nations, scarred by the slow recovery from the financial crisis just over a decade earlier, poured money into rescuing their economies. The United States was particularly aggressive: It supplied $5 trillion in COVID-related aid.
Stimulus helped stave off disaster. The global economy did shrink in 2020 — but only by 3.1%. The IMF now expects record 5.9% growth for 2021.
Beginning earlier this year, vaccines accelerated the return to something closer to ordinary prepandemic life.
COVID-19 uncertainty
Still, the virus itself has continued to complicate the recovery. Infections over the summer, for instance, sent Japan’s economy into a tailspin: It shrank from July through September at a 3.6% annual rate.
Likewise, America’s recovery lost momentum once the highly contagious delta variant erupted over the summer. Growth slowed to a 2.1% annual rate from July through September from 6.7% in the April-June quarter and 6.3% in the JanuaryMarch period.
Overall, though, the economy has recovered with surprising vigor. In June 2020, with the economy still reeling, the Federal Reserve forecast that unemployment would average 9.3% in the final three months of the year and 6.5% at the end of 2021. In reality? The jobless rate plummeted from 11.1% in June 2020 to 6.7% by year’s end. It’s now at 4.2%.
Overwhelmed
In some ways, it’s been too much of a good thing.
Robust demand, especially for autos, appliances and other physical goods, overwhelmed global manufacturers. Factories couldn’t obtain enough raw materials and parts. Ports and freight yards were swamped.
Companies grappled with shortages of everything they needed, notably workers.
The pain of high prices
The supply chain bottlenecks have driven up costs, contributing to a problem that most rich countries hadn’t had to endure for years: high inflation. The IMF expects consumer prices in advanced economies to rise 2.8% this year. That would be the highest such rate since 2008.
Last month, U.S. consumer prices shot up 6.8% from 12 months earlier — the biggest year-over-year increase since 1982.
At a Mobil station in Yonkers, New York, Mario Bodden, a project manager at a nearby mall, said it cost $50 to fill up, instead of the $35 he was used to. “You start thinking: Do I go shopping? Do I fill it up today?” Bodden said.
American labor shortage
Even while absorbing higher prices, workers, especially in America, were benefiting from a tighter labor market that gave them leverage to secure better pay and benefits.
The United States, in particular, experienced acute labor shortages. At the depths of the pandemic recession in the spring of 2002, employers had slashed 22 million jobs. When the economy bounced back, they scrambled to recall laid-off workers — or find new ones. In September and October, employers listed a record 1.4 job openings for every unemployed American.