Recovery Continues: A Cautionary Tale

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Grand Valley State University Supply Chain expert Brian Long says the economic recovery is continuing.  However, he’s keeping a watchful eye on inflation.  Long takes a serious look at all the numbers monthly, and here’s his overview as of June 30:

“The West Michigan industrial economy continues to expand, although the pace has moderated. NEW ORDERS, our closely watched index of business improvement, posted at +33 in June, well below the recent peak of +57 reported at the beginning of the year. The June PRODUCTION Index, which is now termed “output” by many economists, remained stable at +36, up modestly from May’s estimate of +33. Despite ongoing logistics problems, rising prices, and shortages of critical materials, activity in the purchasing offices, our index of PURCHASES, eased modestly to +38 from +41. Although some industries have fully recovered from the pandemic shock, a significant number of firms in our survey panel continue
to experience spot shortages and shipment delays for a wide range of industrial commodities with no immediate end in sight. For some firms, the problems have actually worsened in recent weeks. This month’s index of LEAD TIMES eased modestly to +85 from the survey record of +93 set two months ago, but normal lead times are still not expected to return for many more months. The stress level for some supply chain managers continues unabated.”

Long says many West Michigan employers are still having trouble hiring staff:  “Staffing continue to be a major problem for many firms, even though some have raised their starting wage and offered “signing bonuses.”  He says many survey respondents continue to blame the current generous unemployment benefits for discouraging some workers from returning to the workforce.

Prices are still on the Professor’s mind:  “The index of PRICES, at +77, is still near a record high for the 32 year history of this survey set in March.  As I’ve noted for several months, industrial inflation, so far, is not spilling over to the consumer sector. It is uncertain how long this trend can continue.”

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That brings us to the question of overall inflation.  And there, Long is sounding an alarm of sorts:  “As all sectors of the economy continue to reopen, the Federal Reserve still appears to be convinced that the current round of inflation at both the consumer and industrial levels is “transitory,” implying that supply and demand will soon balance. So far, the current wave of industrial inflation has not appeared to spill over into the consumer sector. However, if this rebalancing does not take place in the next few months, we may be building another bubble. The most recent Consumer Price Index came in at 5.0 percent, and some estimates for the June index are running as high as 8.0 percent. If the June report comes in at this level, the
recovery could be put in jeopardy. ”

Professor Long elicits comments from those who report their numbers for his monthly research study.   Here are a few of them:

–“Automotive continues to stay strong for us. We’re waiting to see when we will have the microchip slow down.”
–“Our sales are down due to the OEM shutdowns related to the semiconductor shortages.”
–“It is a daily challenge to overcome part shortages and labor shortages.”
–“We are still struggling to hire people. We need another 15%.
–“Once supply meets demand late this year, we are forecasting a 20% decrease in business.”

Brian G. Long is the Director of Supply Management Research at Grand Valley State University

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