Supply Shortages – May Not Be A Temporary ‘Blip’

Have you walked into a grocery store in the past month?  And, taken a look at the empty shelves?   We as Americans are not used to this?  Why is this?  And, when will it be fixed? We hear that it’s due to the pandemic, and now virtually everyone in America has heard about the ‘Supply Chain Crisis.’  But what’s really going on?

And, why are we still seeing these strange shortages?   Sure, there was a major one-time blip – when we shut down the economy and the production of ‘supply’ was significantly disrupted – as well as the delivery of that supply.  Typically, we might expect that with the lifting of the shutdown and the opening back up of the economy, all would work its way back to normal.  But, interestingly – there are signs that this may not be what’s happening.  So, why?

Well, when you ‘peel the onion,’ here’s what you find. People aren’t going back to work. And, worse, this may not be a temporary phenomenon.  There was definitely an incentive created for a number of people to stay out of the workforce and collect government payments as a result of the pandemic.  But, now, with the many of those payments being curtailed, significant numbers of people are remaining out of the workforce.   To put this in perspective, there are currently approximately 10.5 million job openings in the U.S. needed to be filled.  At the same time, there are only approximately 8.4 million people looking for jobs.  And, of course, there won’t be a perfect ‘fit,’ as not all of the 8.4 million job seekers have exactly the right skills or interests that match to 10.5 million jobs.  In fact, the Federal Bank of St. Louis completed a major in-depth study of the issue and predicts that the shortage will persist, continuing in the range of 2-3 million job openings going forward.

Why the labor shortage?  And, most important, will it be fixed soon?  Well, nobody really knows – but there is evidence that this may well be a systemic problem – not easily rectified. In other words, our population is ‘aging out.’  Data suggests that many of those who have exited the workforce have reached retirement age and will not be going back and many others have taken early retirement. This underlying trend had existed prior to the pandemic, and like so many other pandemic related phenomena, Covid simply accelerated a trend that was already fully in motion.  Note that as of 2010, retirees accounted for approximately 15 percent of the U.S. population and by 2020, that proportion had already grown to 20 percent. 

So, as we struggle to find workers, many jobs simply may remain ‘undone.’  From agricultural workers in the fields growing our food supply to truckers delivering the products, all the way to grocery stores – where today as many as 50 percent of store employees are missing at some grocery chains – we truly do have a supply chain crisis.  And, of course, it’s not just our food supply, in fact, shortages ripple through to so many additional sectors of our economy including semiconductors, cars, housing and so much more. 

As investors looking out to 2022 and beyond, the obvious takeaway is that we should be striking a cautionary note.  There is a human impulse driving us to believe that once we get through the present disruption, things will revert back to normal.  But, given what we are seeing – with the persistence of the current labor shortage, combined with the underlying aging of the population, we are well advised to factor in a conservative view as we consider the investment horizon.