AMERICANS ARE used to getting what they want when they want it. But these days they find themselves in the unfamiliar position of having to wait. Companies from General Motors to Nintendo complain of a shortage of microchips. Prices of lumber and chicken breasts, both in short supply, are soaring; and it is ever more difficult to get hold of a pair of roller skates or a hot tub. Even workers seem to be hard to come by. Firms are struggling to recruit enough staff to fill open positions—perhaps a big reason why the jobs report for April, published on May 7th, showed that America had added just 266,000 jobs, well below the 1m or so that many economists had expected.
The scarcities seem to go beyond the realm of anecdotes. Not since the mid-1970s have companies been so likely to report delays in supplier deliveries, suggests research published in March by Goldman Sachs, a bank. A survey of bosses by IHS Markit indicates that manufacturers’ backlogs of work rose at a record rate in the spring. That raises the question of whether shortages stand to derail the economic recovery—and set off rampant inflation.
The shortages are in fact a sign of returning economic vitality. Some delays were apparent in early 2020, too. Then the spread of covid-19 was largely limited to China; the closure of factories there to stop its spread meant that American carmakers struggled to source key inputs. But whereas those shortages were linked to the global economy shutting down today’s are linked to its opening up. Delays seem to be most prevalent in America, where it is probably no coincidence that consumer demand is making a healthy recovery. According to a tracker compiled by JPMorgan Chase, a bank, credit-card spending rose from a tenth below its pre-pandemic trend in the six months to March to only just below it by May. The speed of this bounce-back seems to have caught companies off guard. American retailers’ inventories, relative to revenues, have plunged to all-time lows, suggesting that shops are running out of things to sell. Many firms, especially smaller ones, have ordered insufficient supplies and are now frantically catching up. (By contrast, the inventories of large listed firms have not declined, either because they were better able to forecast the coming spending binge, or because their supply chains are more diversified.) But surges in demand cannot immediately be fulfilled. Take imported supplies, for instance. Even at the best of times extra demand for international deliveries takes a while to sate; a ship can take a few weeks to sail from China to America. The added complication in 2021 is that firms must also contend with shortages of containers in some ports. Some were stranded in the wrong place during the first wave of lockdowns. In the meantime, prices of some things might well go up. The cost of shipping items from China to America has roughly tripled over the past year. Some firms are looking for other ways of getting products into America, including air freight, which will cut delivery times but cost more. Monthly rates of input, or producer-price, inflation have picked up in the spring. Once assured of demand, some companies may begin to pass on higher costs.
Others are rationing demand by raising prices. Research by Robin Brooks of the Institute of International Finance, a bankers’ association, finds that American manufacturers have been raising their prices, relative to their input costs, by more than firms in practically any other country.
All this is contributing to market jitters that runaway inflation might be around the corner. The five-year break-even rate, a measure of market inflation expectations, reached 2.7% on May 11th, its highest level in 13 years. Whether price rises will be sustained is far from clear. Figures released on May 12th showed that the consumer-price index rose by 4.2% year-on-year in April, a big acceleration from the previous month’s figure of 2.6%, and considerably more than many analysts had expected. But by far the biggest factor in that rise relates to last year’s oil-price falls dropping out of the annual comparison, not bottlenecks.
And last year’s experience suggests that shortages may not last long enough to cause more than a transient spike in inflation. Even as economies locked down in early 2020, firms quickly found new ways of sourcing material. The wait for a hot tub should eventually come to an end.