Recent setbacks raise doubt about how quickly businesses can respond to customers who seem intent on spending freely.
April 9, 2021, 5:00 a.m. ET
Container ships stretch far out into the Pacific, waiting days for their turn to unload goods at California ports. Automakers pause production because they can’t get enough of the computer chips that make a modern car work. Long-dormant restaurants finally see a surge of customer demand, but they can’t find enough cooks.
These are all headlines of recent days, and they have one thing in common: They show how America’s great economic challenge has turned 180 degrees in a breathtakingly short time.
Just a few months ago, the nation faced an enormous shortage of demand for goods and services, which threatened to prolong the pandemic-induced downturn long beyond the point at which the virus was contained. The central economic problem of 2021 is looking like the polar opposite. Businesses are beginning to face the challenge of producing adequate supplies of goods and services — whether of lumber or of cold beer — to satiate that resurgent demand.
Huge swaths of the economy shut down last spring and are now being turned back on. But as roughly three million Americans are vaccinated per day and nearly $3 trillion in federal money courses through the economy, it is an open question how long it will take businesses to get up to speed. Their collective success or failure will determine whether this is a year of Goldilocks economic conditions, or a frustrating mix of price spikes and persistent shortages.
“The global economy is vulnerable because it never really recovered,” said Nada Sanders, a professor of supply chain management at Northeastern University. “There is massive pent-up consumer demand, but it’s important to have supply and demand connected because when you have a supply shortage you don’t have the products consumers want.”
After huge disruptions over the last year, the intricate networks by which major industries keep shelves full and services available have become frayed. Many workers have left the labor force. Worldwide manufacturing and shipping went through temporary shutdowns followed by reopenings, creating disruptions that random recent events, like the Texas ice storms and the Suez Canal blockage, have made worse.
Semiconductor companies cut back on manufacture of the chips destined for cars and trucks when major automakers reduced production during the early days of the pandemic. The semiconductor firms shifted toward making the chips needed for in-demand computers and other home electronics.
The auto industry is now facing the lagged effects of that cutback. For two weeks, Ford idled the factory that makes its popular F-150 trucks, for example. Over all, analysts at IHS Markit forecast one million fewer vehicles will be made in the first quarter of 2021 because of the disruptions. That means American consumers who want to put their new stimulus checks toward a car may face fewer options and have little negotiating leverage on price.
The labor market, meanwhile, presents a paradox. The unemployment rate, at 6 percent, is far above its prepandemic level, and the job market is even worse if you include Americans who say they are no longer looking for work. Yet many employers, especially in restaurants and related service industries, describe a shortage of labor.
At Bibb Distributing Co., a distributor of Anheuser-Busch and other beers in Macon, Ga., delivery drivers are sufficiently hard to find — and demand for the product sufficiently strong — that drivers have been asked to put in overtime and managers deployed on trucks, said Win Stewart, the chief executive.
“When I talk to other people in the market, trying to figure out whether it’s something we’re doing or if others are experiencing the same thing, all of my conversations are the same,” Mr. Stewart said. “We can’t find people.”
That could make things challenging if the summer goes the way many expect, with a wider reopening of the economy as most people are vaccinated. The 85-person company already has 10 to 12 openings, and drivers routinely are offered signing bonuses to move elsewhere.
“I feel like there’s going to be a surge in demand, as they open up concert venues and resorts,” Mr. Stewart said. “You’re going to see strong demand, and I’m not sure you’ll have the labor pool to service it.”
There are varying theories for the disconnect between the data that point to a weak labor market and anecdotal reports of a strong one.
It may be that many would-be workers are unable or unwilling to take jobs so long as they see health risks from coronavirus, or they are spending their time caring for children or for older or disabled family members. Jed Kolko, chief economist of Indeed and an Upshot contributor, has calculated that the percentage of women 25 to 54 who are working has declined by 4.5 percentage points among mothers, compared with 3.4 percentage points among those without children.
That would imply that efforts to get schools, day care centers and nursing homes back to full capacity will have important positive effects on the economy’s supply potential — part of the Biden administration’s rationale for emphasizing spending on those areas in its pandemic rescue plan.
Another possible reason for the lack of workers is that the influx of federal money has made some people less motivated to work. Mr. Stewart said five or six employees quit in the days after the government sent out $1,400 stimulus checks, and business leaders have argued that expanded unemployment insurance benefits may be dissuading people from returning to the work force.
But that theory is not supported by research on earlier rounds of expanded benefits, which found that a shortage of job opportunities was a bigger factor in joblessness than people staying on unemployment benefits.
The combination of a surge in demand and disruptions in the economy’s supply has important global dimensions, too. Many businesses rely on imports, including from countries that are far behind the United States in vaccinating their people, and in some cases facing new outbreaks.
Moreover, the backup in container ships at the Port of Los Angeles and some other American ports, especially on the West Coast, shows the world trade system has continued to be stressed by the whipsaw effect of last year’s shutdowns followed by surging demand.
“There are companies that have changed the way they operate from before the pandemic and are more digitally enabled, and reopening is not as big a deal for them,” said James Manyika, a partner at McKinsey Global Institute, the in-house research arm of the giant consultancy. “The problem is those are not the majority of companies, and those other companies will find they are highly dependent on their ecosystems and their supply chains.”
You can’t turn the world economy off, then turn it back on, and expect everything to come back to normal instantly, in other words. The question for 2021 is just how slow that rebooting process turns out to be.