Americans keep using – The Mercury News

By TOM KRISHER and PAUL WISEMAN AP Business Writers

DETROIT (AP) – Take a step back from the selected store shelves, the locked container ships and the empty car showrooms, and you will find a fundamental reason for the lack of almost everything.

Although the pandemic has dragged on, US households, flushed with cash from stimulus checks, booming stock markets and expanded housing capital, have wanted to spend freely again – a lot. And as consumer demand drives a large portion of the U.S. and global economies, high demand has brought shortages to the United States and large parts of the world.

Add to that the fact that companies order – and stockpile – more goods and parts than they need so they do not run out, and you end up with an almost indelible demand that magnifies the supply shortage.

This is where a big problem comes in: Suppliers were caught so flat-footed by how quickly accumulated consumption rose out of the recession that they are unlikely to be able to catch up as long as demand remains so robust. This is especially true because Americans, who still sit at home more than they did before the pandemic, continue to spend more on goods – electronics, furniture, appliances, sporting goods – than on services like hotels, meals out and movie tickets. All that demand for goods, in turn, is accelerating US inflation.

Unless spending falls sharply back on services – or something else causes people to stop buying so much – it could take deep into 2022 or even 2023 before global supply chains regain any kind of normality.

“Demand is completely skewed,” said Bindiya Vakil, CEO of Resilinc, a consulting firm that helps companies manage supply chains. “This has now become more and more painful with each passing day.”

One reason why people end up spending so much is that everything simply costs more now. Consumer prices in the US have risen by 6.2% over the past year as food, petrol, cars and housing rocked inflation at its highest rate since 1990. The laws of gravity suggest that the cumulative effect of so much inflation will eventually put a brake on spending.

For now, however, producers predict no end to high demand – and no end to besieged supply chains or rising inflationary pressures. A chronic shortage of computer chips has forced Ford Motor Co., for example, to renew its system of ordering spare parts that require long periods from order to delivery to try to remedy deficiencies.

A cargo ship stacked with shipping containers is docked at the Port of Los Angeles on Wednesday, November 10, 2021 in Los Angeles. Experts say that unless more spending is shifted back to services or something else motivates people to stop buying, it could take a good while into next year or even 2023 before U.S. and global supply chains return to a normal look. (AP Photo / Marcio Jose Sanchez)

“It has been highlighted that the ‘just-in-time’ operating model that has been prevalent in cars may not be the right operating model,” Hau Thai-Tang, Ford’s operations and product manager, told analysts.

Even smaller companies have felt compelled to build up as many supplies as they can so they can still make products. Moriarty’s Gem Art near Chicago, a family business for 40 years, has filled up with gold, silver and platinum to make necklaces and rings, desperate not to run out of supplies as holiday orders rise.

“We order a lot more than what we actually have orders for – just in case,” said Jeff Moriarty, marketing manager.

Even a normal shopping break after a public holiday, though it may help, is not expected to be enough to empty ports, speed up ship traffic or allow factories to rebuild stocks.

“The baseline expectation for improvement is around mid-2022,” said Oren Klachkin, lead U.S. economist at Oxford Economics. “But I think the risk of that happening later is pretty high.”

FILE – This aerial photo shows a General Motors assembly plant in the upper right, while medium-sized pickup trucks and full-size vans currently being produced at the plant are seen in a parking lot outside Wednesday, March 24, 2021 in Wentzville, Mo. Experts say that unless more spending is shifted back to services or something else motivates people to stop buying, it could take a good while into next year or even 2023 before U.S. and global supply chains return to a normal look. (AP Photo / Jeff Roberson, File)

Although Americans have increasingly ventured out in recent months, the balance between spending on goods and services remains skewed. The pent-up demand that followed the economic recovery is still tilting towards goods like furniture and cars and less towards haircuts, concerts and restaurant meals. Although spending on services has grown in recent months, it is not near enough to close the gap.

Since April 2020, consumer consumption of goods has increased by 32%. It is now 15% above where it was in February 2020, just before the pandemic paralyzed the economy. Goods account for about 40% of consumer spending now, up from 36% before the pandemic.

US factories have been trying hard to keep up with demand. Production has risen nearly 5% over the past year, according to the Federal Reserve, despite periodic ups and downs, including disruptions to car production caused by chip shortages.

Imports have narrowed the gap between what U.S. consumers want and what its factories can produce. From January to September this year, the US imported 23% more than in the same period in 2020. In September, thanks to rising imports, the US had a record-breaking trade deficit: imports topped exports with $ 98.2 billion.

The voracious demand for goods has accelerated as more people have been vaccinated in richer countries. But in poorer countries, especially in Southeast Asia, the proliferation of the delta variant has forced new factory closures in recent months and shrunk supply chains again. Only recently did it start to recover.

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