Economics Current Events Supply And Demand

By | September 17, 2023

Economics Current Events Supply And Demand – These are times of rapid change for the US economy. As the worst part of the pandemic recedes, businesses have added jobs at a rate of 540,000 per month since January. Many consumers made big purchases with savings during the pandemic, sending new home sales to their highest level in 14 years and sales to their highest level in 15 years.

While this accelerating axis of growth is good news for businesses and workers, it also creates problems. All businesses that went down significantly during the pandemic, such as hotels and restaurants, are now trying to reopen. Some businesses reported that they could not hire fast enough to meet their growing workforce needs, leading to a record 8.3 million job losses in April. Others don’t have enough of their product to avoid running out of stock. This situation is particularly difficult for businesses with connected devices, as their products are hampered by a lack of devices from other businesses.

Economics Current Events Supply And Demand

Economics Current Events Supply And Demand

These complaints and product disruptions are significant and widespread — but that seems to be changing. Below, we explain its implications, how supply chains have adapted to past impacts, and how management is working to address the challenges of short supply chains and longer ones.

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Figure 1 shows that the global economy and the retail sales-to-sales ratio fell to a record low in March. These ratios measure how many days of current sales businesses and retailers can sustain from current inventory. During the pandemic, businesses have been stuck with billions of dollars in unsold inventory, causing the inventory-to-sales ratio to rise briefly before businesses can remove the item. But, as the economy recovers and demand increases, businesses have not yet been able to bring total inventory back to pre-pandemic levels, causing the inventory-to-sales ratio to fall.

The chart shows that while stores had 43 days of inventory in February 2020, today they only have 33 days. Sales of cars and homes are also at or near record lows, enough for just one month of car sales and 4.4 months of home sales, compared to pre-pandemic levels. About two months for cars and 5.5 months for houses. This low inventory has created a stock market crash problem. In the latest U.S. Census Small Business Plus survey, conducted May 31 through June 6, 36 percent of small businesses reported delays with in-house suppliers, production, construction and trade delays, as shown in Figure 2. is shown. Comparable scientific data available before the global pandemic, especially research in the economy of ideas, are insufficient to show that these levels are above normal.

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The data also shows that these loopholes are holding back business in some sectors. Data on home builders, surveyed in May by the National Association of Home Builders, shows shortages of key materials such as framing lumber, wallboard and roofing. Homebuilders appear to be responding to these shortages by delaying new construction, as houses start moving for months.

Another effect of scarcity is rapid growth. Between May 2020 and May 2021, commodity prices tracked in the producer price index rose 19 percent, the largest year-over-year increase since 1974, as part of the affected base. Some enhancements were especially possible. Faced with a shortage of lumber, builders last month briefly sent the price down to $1,711 per thousand board feet, a price that means the bill for a typical 2,000-square-foot home is lower than the bill for lumber alone. More than $27,000 will be needed to produce the About $7,000 before the spread. Lumber prices have now recovered sharply, down 38 percent from their record high, in an early sign that some of the shortages may be short-lived.

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Disruptions in the supply chain also affect consumer prices, particularly in the automotive industry. If we include the prices of new, used, rental, and rental cars, more than half of May’s key results increase as measured by the consumer price index from these activities. The industry also accounts for a third of the entire economy in value terms compared to a year ago.[2]

One of the major reasons for the major problems in the car industry is that car manufacturers have seen a drop in demand for their products since the start of the pandemic. Anticipating weak demand, they stopped ordering semiconductors, a product with long service life and other business needs. This problem has been exacerbated by the fragmentation of the shipping industry in many countries and companies over the last decade. This trend has made it difficult for manufacturers to increase the number of products. To increase resistance, semiconductor devices can be made by one company, which is made by another company, the equipment (such as airbags) is shipped to a third-party supplier, and then shipped to the automaker’s assembly for installation. Is. In general, neither a car company nor a semiconductor manufacturer can track what happens in the middle layers (or “tiers”) of the supply chain, due to a lack of trust. The information will be used to negotiate a replacement or price reduction. Although these problems are most acute in electronics, they exist in other areas of auto equipment as well. The car industry is a “business of business,” so the price of a car is affected by the cost of the 30,000 parts of a car, from electronics to metal, from plastic to rubber, and the transportation of those products to multiple locations. . Border countries

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Although the market-wide nature of these shortages is unusual, the history of specific product impacts can provide insight into how the shortage will be addressed in a timely manner. In the past, many businesses were surprised by strong demand and caught with very little inventory of certain products. Others have been affected by crop failures or natural disasters that have temporarily taken key manufacturing facilities offline, such as after the 2011 earthquake in Japan. In this case, businesses quickly return to equilibrium.

Economics Current Events Supply And Demand

Take coffee for example. As some coffee drinkers may remember, the price of coffee has been rising due to snow destroying coffee, as recently as 2010. Each time, the weather improved, crops improved, and prices returned to their previous levels. Similar price fluctuations have occurred in agricultural products and other commodity markets – peanuts during the 2011 drought, or eggs during the 2015 flu.

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The lack of information in the early days of the epidemic offers another important lesson. Stay-at-home orders have increased demand for toilet paper, the fluffier variety used by families, by 40 percent. However, supply cannot increase overnight to meet demand. Toilet paper is huge to stock, and demand is so steady, that stores keep only two to three weeks’ worth of sales in inventory and companies run their plants at 92 percent capacity. Fearing they would run out of toilet paper, Americans cleared the shelves.

How are American wax manufacturers responding to this shortage? Adding production lines or building new plants for expansion did not result. That’s because today’s bathroom manufacturing process is equipment-intensive and capital-intensive, requiring four-story tall machines that cost millions of dollars and months to build. And some of the results have shifted manufacturers from the tissue business to different stores, unlike the quick fix that allowed American companies to improve sanitary napkins and hand sanitizers. Many people do not sell toilet paper at home.

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Instead, manufacturers made a little more of their existing processes. They are running the plant at nearly 100 percent capacity and restarting the automation system. Some are updating their products, reducing machine time and, in particular, switching to larger products that can get more paper for the family without the cost of replacing machines. Others have invested in their distribution, so they can more quickly anticipate and respond to local shortages.

There is evidence that existing interventions are largely transferable. Indices of delivery times in surveys of companies by the three Federal Reserve institutions in the region are currently at record highs, but the Fed’s indices for delivery times in the past are next in their range. While current indicators reflect conditions at the time of the survey, future indicators reflect expected conditions in six months. Taken together, the data shows that companies think the current problem streak will end in six months or so.

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Although the economy will eventually adjust, they can be slow and the impact on producers and consumers can be costly. The public sector can play an important role in reducing these costs by facilitating short-term reforms and eliminating inefficiencies in the US supply chain. The U.S. government has provided assistance at critical times, such as helping Japan after the 2011 earthquake, for example, or developing a vaccine against COVID-19.