24 x 7 World News

As the U.S. economy restarts from the pandemic, parts of it are severely broken

0

A worker operates a forklift to move bundles of Hampton lumber for a shipment order at Burton Lumber in Salt Lake City, Utah, on Thursday, May 6, 2021.

George Frey | Bloomberg | Getty Images

The U.S. economy is trying to restart its engine after tumbling into its deepest recession in generations, but a variety of supply-chain constraints are threatening the country’s rebound.

The country is faced with major shortages in everything from labor to semiconductors, lumber and packaging materials. Not even swimming pools can be counted on this summer with the U.S. running low on chlorine. The scarcity left and right is not only preventing the economy from reaching its full potential, but also raising fears of higher inflation as companies are forced to hike prices amid the low supply.

“These shortages, both labor and non-labor, will affect the speed under which the economy recovers,” said Michael Gapen, head of U.S. economics research at Barclays. “Labor and non-labor inputs are complements in production. You need both. If I can’t get my semiconductors to make my autos, then I don’t necessarily need to hire more labor right now.”

The U.S. labor force participation rate still remains well below pre-pandemic levels as many Americans have yet to go back to work partly due to generous unemployment benefits and childcare duty. Meanwhile, manufacturers are struggling to catch up with a jolt in demand amid supply crunches in components and raw materials, stalling the rebound across broad swaths of the economy from housing to services, tech, autos and leisure.

“This is going to be a longer process coming out than when it went in,” Gapen said. “Like the global economy is recovering at an uneven pace, it’s likely that the U.S. economy is going to do the same. There are some kinks to still work out in the system.”

’10 million jobs short’

The labor force participation rate plunged to its lowest level since 1973 in April as the pandemic kicked a massive number of workers out of the jobs market. While the rate has edged higher in the following months, it is still stubbornly below pre-Covid levels — 61.7% in April versus more than 63% before March 2020.

“We have job openings at record levels, we have workers voting for their confidence in labor markets with near-record levels of quits,” Furman said.

“If you look at April, it appears that there were about 1.1 unemployed workers for every job opening. So there are a lot of jobs out there, there is just still not a lot of labor supply.”

Companies raise alarm bells on chip shortage

When the Covid-19 pandemic hit, an already red-hot semiconductor industry experienced a demand explosion in products like smartphones and computers, causing an unprecedented supply shock that grips businesses across the board rushing to meet orders.

The semiconductor scarcity has been well documented by executives on earnings calls this quarterly reporting season. At least 70 S&P 500 companies highlighted a chip shortage during their earnings calls over the past three months, according to CNBC analysis of FactSet data.

Lumber prices driving up home costs

Packaging materials costs soar 50%

There is also a major shortage in packaging materials such as plastics, paper and metals, which drove packaging costs up more than 50% since the start of the pandemic, according to data from Mintec Global.

A rapid rise in e-commerce during the lockdown created a surge in demand for paper packaging materials, which tightened supply further amid reduced wastepaper from the retail sector, according to analysts at Mintec.

Meanwhile, supply is expected to be limited for longer as many paper mills stop for scheduled maintenance in the spring, the analysts said.

Prices for most plastic materials are trending at multi-year highs with U.S. polypropylene prices more than doubling year over year, according to Mintec. On top of lockdown restrictions at the height of the pandemic, plastic markets were hit by substantial plant outages in the third quarter caused by hurricanes followed by severe winter storms during February.

Furthermore, logistical problems including container bottlenecks and a lack of shipping containers has led to an exponential rise in freight costs, Mintec said.

It’s widely expected that some of the supply-chain bottlenecks and increasing price pressures will get passed down to consumers.

“Over the course of 2021, goods price inflation will be above its longer-term trend,” Gapen said.

Economists expect April consumer price index to rise 0.2% over March, after a gain of 0.6% the month earlier. But on a year-over-year basis, CPI is expected to look sizzling with a 3.6% jump, according to Dow Jones. 

Chemical fire shrinks chlorine supply

Americans may be forced to seek alternatives this summer such as converting pools to saltwater systems, but those, too, are in short supply.

— CNBC’s Tom Franck contributed reporting.

Enjoyed this article?
For exclusive stock picks, investment ideas and CNBC global livestream
Sign up for CNBC Pro
Start your free trial now

Leave a Reply