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Tuesday, September 28, 2021
High demand + bottlenecked supply + spiking prices = no relief
The economy is still growing — albeit a touch more slowly. And while sentiment indicators suggest otherwise, the consumer still appears more than willing to spend in the face of rising inflation and raging COVID-19 infections.
According to Kenneth Leon, CFRA’s research director, “U.S. households are flush with cash and still track 45% higher than the 20-year average personal saving rate.” Which explains why, even as the Delta variant menaces restaurants, leisure and travel, many bank accounts are still in the green.
In fact, Bank of America CEO Brian Monynihan was recently quoted as saying that consumers have so much money to spend that current bank balances of “people who, before the pandemic, ran a balance of, say, $1,500 of average collective balance, or $2,000 type of range, think of that, are now sitting with $6,000 and $7,000 in their checking accounts.”
Along with a labor market that’s got so many open jobs that it can’t create new ones, the willingness of people to keep opening their wallets is one of several enduring mysteries of the pandemic-era economy.
All the more jarring is the fact that consumers are apparently splurging on goods that are taking far longer than normal to reach them.
Indeed, at ports all around the world, the great supply chain crisis has led to lengthening shipping queues and orders for products that can’t be readily fulfilled. Red hot demand is pushing up prices — and even forcing companies like Costco (COST) and Home Depot (HD) to rent their own container ships in order to insulate themselves from worsening supply bottlenecks.
From electronics and home supplies to food, companies can’t meet demand fast enough. It's becoming increasingly apparent that a lack of available workers is leading to a dramatic slowdown in goods and services delivery, and both are adding to inflationary pressures, with Goldman Sachs estimating that the supply crunch translated into 80% of this year’s overshoot in prices.
Call it a not-so-virtuous cycle — or better yet, an unholy trinity.
With COVID-19 being the force multiplier it is, an already acute shortage of semiconductors (responsible for tight supplies of cars, game consoles and all things electronic) is getting worse — again. Surging virus infections in Southeast Asia are hammering auto production, and Goldman estimates that lockdowns in key Asian markets will continue to be a drag on demand.