Supply Chain Issues | Adviser Investments

Supply Chain Kinks Keep Consumers in Check

American consumers have money to spend but kinks in the supply chain are holding back an even more robust recovery. What will that mean for the economy going forward? Here’s what Chairman Dan Wiener said in our recent webinar,  Booster Shots, Market Shocks and the End of Fed Intervention:*

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Dan Wiener:

The rapid rise in vaccinations began in March of this year, and that’s about the time we started to hear a lot of talk about supply chains and supply-demand imbalances.

Google searches for “supply chain” jumped in August, soared in September and more than doubled over the past month or so. In just half a second, you’ll find more than 130 million news stories and 4.1 billion references. What is this all about? A lot of people are saying the supply chain may only be as strong as its weakest link. But in many cases, I don’t think it’s about the link being broken; I think it’s that the supply chain is kinked.

Semiconductor chip supply is hampering auto production—a typical car contains between 500 and 1,500 chips. Driver supply is hampering deliveries from ports to warehouses. Worker supply is hampering the offloading of trucks. Ships are backed up at the ports, so they’re unavailable for reloading. Sometimes it’s the link and sometimes it’s the kink in the chain—it’s not the consumer.

Believe it or not, many household balance sheets are super healthy right now. Some Americans actually have more money to spend today than they did in 2020 or 2019. High-net-worth households have seen their net worth rise substantially over the past decade, even after we adjust for inflation. It’s the middle- and lower-net-worth households that have really stagnated in terms of growing their wealth, and one of the main reasons for that is participation in the stock market.

If you’re an investor, then your wealth has been going up. And in the current economic recovery, many of you are spending. According to data from OpenTable, in 2021 there was a steady climb in restaurant seatings. While there have been some hiccups, often keyed to resurgences in COVID-19, particularly the delta variant, we’re at or near 2019 levels, which suggests recovery.

The number of seatings might be even higher if not for a kink in the supply chain: In 2021, there aren’t as many workers to handle diners as there were in 2019. If you’re a restaurateur and you don’t have the staff, you can’t offer as many seats for reservation. Some restaurateurs have even stopped taking reservations. Demand is so high that they’re actually filling more seats by taking names at the door than by holding a table for a party that doesn’t appear. Those seatings don’t even show up in OpenTable’s numbers.

Mileage is another good metric for showing whether economic activity is waning or waxing. Miles driven by trucks and cars dropped by 60% during the COVID-19 recession but bounced back pretty quickly. A steadier climb occurred in 2021 as vaccines began to roll out. Car mileage is about back to pre-pandemic levels and trucks are actually putting on more miles than they did in 2019. (What the recent increase in oil prices—and hence gasoline prices—will do to these mileage stats remains to be seen.) If you’ve been out on the roads lately (as I have been, on both the East and West Coast), it’s pretty busy out there.

Amazingly, as Zoom has boomed, business travel has suffered. Qualitative and quantitative surveys suggest that there simply aren’t going to be as many air warriors hitting the TSA checkpoints in the months to come as we’ve seen in the past. Tourists, however, are back and the itch to travel is driving up ticket prices as demand for seats increases. One reason for this is that airlines took a lot of planes out of service during the pandemic shutdown and many of those planes remain mothballed. But there’s a people problem here too: Furloughed and retired cabin crews mean the number of available pilots and flight attendants has been reduced.

Click here for a replay of Booster Shots, Market Shocks and the End of Fed Intervention. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.

*Webinar recorded after the market closed on Wednesday, October 20, 2021.

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