'This Is Not Just Any Usual Recovery': Economist Explains Rash Of Price Hikes, Product Shortages
(CBS Baltimore) -- The economic turnaround continues as the country pulls out of the pandemic. But the path to recovery has been far from smooth. Shortages and price hikes across a whole range of products continue to plague consumers, and they're likely to persist in the short-term. It's yet another side effect of COVID, though one that economists predict should improve with time.
The early days of lockdown were marked with widespread scarcity for certain key items. Hand sanitizer, disinfecting wipes and masks topped the list, as people sought protection from the little-understood virus. Toilet paper, being maybe the top panic purchase of all-time, also ran low. Stores couldn't keep any of it on the shelves. And then, as suppliers struggled to meet demand, stores couldn't get it on the shelves at all. Prices, however, remained fairly stable, at least at major stores.
Demand eventually leveled off, or supply rose to meet the elevated need. Or maybe both. People learned that transmission of the virus happened chiefly through the air rather than from surfaces, lessening the need for sanitizer and wipes. Mask production picked up as the pandemic timeline stretched further and further into the future. And toilet paper returned to shelves once panic buying subsided and stores replenished their supply.
Other consumer goods became harder to find as weeks of lockdown turned into months and people adapted to a new reality. Public indoor spaces, like gyms, were off-limits. And social distancing limited capacity when they did reopen. Many people weren't comfortable returning regardless, but still wanted to work out. Hand weights became impossible to find for a time. Bicycles did as well, with people seeking a safe outdoor activity. Baking became a popular indoor diversion leading to shortages of flour and yeast. With remote learning the norm for school-age children, inexpensive laptops, specifically Chromebooks, became hard to find in the weeks leading up to the start of the school year and through much of the fall.
Higher demand was a big issue. Gartner estimates that Chromebook shipments grew by about 90 percent year over year in the third quarter of the 2020 and 200 percent year over year in the fourth quarter. But surging demand wasn't the whole problem. Supply couldn't keep up.
The makers of Chromebooks might have met more of the demand had manufacturers not shut down in the pandemic's early days. And then there's the complicated supply chain, which pulls in component parts from various places, assembles them into computers in China and then ships those computers to America and everywhere else. Each of those suppliers likely experienced their own COVID-related slowdowns and shutdowns, crimping supply chains even further. U.S. government sanctions on certain Chinese government suppliers made matters more difficult as well.
Some version of this supply chain story has played out for countless consumer products across the economy, and will continue to play out until demand evens out and supply catches up. Reports have recently surfaced about shortages and rising prices for everything from chlorine tablets for swimming pools to boba, the tapioca pearls in bubble tea. The pandemic has played a role in both of these cases. Home pool usage in warm-weather locales has increased with people stuck at home. Shipments of boba and the starch used to make it are backlogged, along with many other shipments from Asia across a wide variety of industries.
It's unclear when things will return to normal. Shortages and higher prices are influenced by a range of factors. As Ori Heffetz, Associate Professor of Economics at Cornell University's SC Johnson School of Business, explains, "You need workers, inputs, materials or commodities [to make a product]. And you need capital. And then you need transportation. And above all, you're trying to predict demand patterns. Things take time to produce, so you try to be ahead of demand patterns. The short answer is this is a work in progress."
"We have bottlenecks in almost each one of these things," Heffetz continued. "Workers, materials, commodities, transportation, and the big one, predicting demand patterns. I can point to issues with each one of them."
Some of these issues are broad. Many companies across various industries claim there is a shortage of workers. A recent disappointing jobs report for the month of April supports those claims. Employers added 266,000 jobs in the month, far below the 1 million they were expected to add. While 331,000 jobs returned in leisure and hospitality, those gains were countered by losses in temporary help services, transportation and warehousing and the auto sector. Generous unemployment benefits factor into the lag in hiring. Fear of an unsafe work environment, particularly with regard to social distancing and person-to-person contact, also plays a part. A third factor is relocation friction, changes in the employers' needs in terms of employee skills and workers' needs in terms of employment.
According to Heffetz, "part of it is the old story of workers not keeping up. Those workers who lost their jobs working in a restaurant will not be very quickly be rehired doing something else. These are things that take time."
With demand rising across much of the economy, demand for commodities used to make things is also rising. "When global demand collapsed a year ago, we saw prices collapsing, and now the world is coming back," said Heffetz. "So strong demand, high commodity prices."
Rising commodity prices and shortages mean economy-wide difficulties in producers securing what they need to make products. That could translate to boba makers not having enough starch. That could also lead to makers of computers and cars (and smartphones and many other modern devices) not having enough microchips. Without these inputs, production lines sit idle and workers lose hours. And in the case of cars, that leads to higher car prices and fewer new cars available for sale. Buyers then flock to the used car market, pushing up those prices too.
Supply chain difficulties are also affecting restaurants. According to Christina Gonzalez, owner of Taqueria Los Comales in Chicago, "Nothing ever has been comparable exactly to what we've been going through right now."
"Chicken, meats, produce, paper – anything that basically has to be transported by fuel has gone up," she continued.
Pick an industry, and it's probably struggling to work out supply chain issues brought on or exacerbated by the pandemic. A recent Federal Reserve report summarizing comments received from across the business community cited "widespread supply chain disruptions" as a major factor influence on current business activity.
Companies have to revive and retool their supply chains in the midst of drastic changes in consumer demand patterns. COVID has changed how people consume. And companies have to guess now where demand for their product will be when everything settles in the future. That's hard enough in a normal economy. In an economy emerging from a pandemic, it becomes much harder still.
"This is not just any usual recovery," in Heffetz's view. "Recovery with perhaps long-term changes in demand patterns. And we still don't know which things are here to stay and which things are going away. So on top of the usual things, we're having to keep up with the quickly recovering economy, but it's not quickly recovering to what it used to be, to the old prices, the old inventories, the old products and patterns. We're reemerging into a post-COVID world. This will just take time, some think it will take a long time."