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What’s plaguing the American economy? According to the Fed, it’s shortages
Supplies may be dwindling, but complaints about “shortages” are surging
IN SAN FRANCISCO shops are running out of paper products and food. In Dallas builders report a scarcity of windows, bricks and appliances. In Chicago manufacturers say they are short of aluminum, steel, copper, plastics, paints, pallets, paper, glue and microchips. Stories about the shortages plaguing American firms can be found throughout the Federal Reserve’s “Beige Book”, a survey of economic conditions across the country that is published eight times a year.
According to estimates by Drew Matus of MetLife Investment Management, an institutional asset manager, mentions of the word “shortages” in the Beige Book have surged. Its latest incarnation, published on October 20th, used the word 70 times. Except for the September tally, that is the most since the Arab oil embargo in 1973. Back then Arab members of the Organisation of Petroleum Exporting Countries banned the export of oil to America in retaliation for its support of Israel in the ongoing Yom Kippur War. The embargo caused fuel shortages across the country. Outside of the 1970s the only other time that shortages were of significant concern was in 1999, when the dotcom bubble and booming economy led to labour shortages in retail, construction and tech.
The current shortfalls result from a boom in demand running headlong into sharply constrained supply chains. Starting in 2020, when the pandemic kept many at home, Americans went online to buy everything from new televisions to flatpack sofas. Helped along by stimulus cheques from the government, the demand for consumer goods has only strengthened this year.
Businesses are struggling to keep up. Shortages of dockers, truck drivers and rail workers have made it harder to move goods around America. And shifting products around the world is now both much more expensive and much slower than usual, in part because of pandemic-related port closures in China. According to Freightos, an online freight marketplace, the average cost of shipping a 40-foot container from Shanghai to Los Angeles is about $17,400, compared with just $3,700 a year ago. Some manufacturers, facing shortages of critical supplies, are scaling back production. Labour also remains scarce, despite offers of higher wages and signing bonuses.
Shortages are unlikely to go away any time soon. The American labour force has lost about 4m workers compared with its size before the pandemic, partly because many people are not yet ready to return to work amid lingering concerns about covid. At the end of August 10.4m job vacancies remained unfilled. The expiration of unemployment benefits and the start of the school year have not boosted the supply of job applicants as much as businesses had hoped, the September Beige Book notes.
Supply-chain bottlenecks, meanwhile, may not be resolved for months. IKEA, a Swedish furniture giant, expects the disruptions to continue into 2022. As for the microchip shortage that is depleting car inventories and dragging down sales, dealers in New York report to the Fed that they see “no end in sight”.
For the Fed this poses a dilemma. The mismatch between soaring demand and stunted supply has contributed to a big jump in inflation. Many analysts expect that the central bank will next month announce plans to rein in the ultra-loose monetary policy unleashed at the depth of the pandemic. Some tightening could help cool down overheated consumer spending. But it will not help businesses restock their depleted shelves, and could make it harder for small companies to stay afloat. Amid such contradictory trends, there will be an oversupply of at least one commodity: economic analysis.