Supply Constraints, and Inflationary Pressure, Are Expected to Last into 2022

June 21, 2021

The post-pandemic economic recovery has been challenged by supply constraints, supply-chain disruptions, labor shortages, and pent-up consumer demand fueled by fiscal stimulus. While many economists expected the economy to shake off these challenges quickly, the consensus is shifting that they will persist through the end of the year at least.

Factory production and hiring slowed in May as compared to the previous month, and new orders and existing order backlogs grew, according to the Institute for Supply Management (ISM). According to the ISM, overall industrial output, which includes mining and utilities, is 1.4% lower than it was prior to the pandemic.

Manufacturers need to not only catch up to demand, but replenish exhausted inventories as well. Retail inventories measured as a share of their sales fell to the lowest level on record according to Census data that goes back to 1992. Prior to the pandemic, retailers had 1.43 month’s worth of sales on hand. As of April, that has fallen to 1.07.

The Wall Street Journal cites an economist who estimates that even in the best-case scenario, supply constraints will last for at least 12 more months. They also note that demand is likely to surge even further when households begin back-to-school shopping and that there’s a “very good chance” that we will see severe product shortages in September.

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