Shortages Cool Down Growth

Sebastien Callebaut -

Workers Are Scarce And Import Price High

The Institute for Supply Management said on Tuesday that its non-manufacturing activity index has fallen to 60.1 while it stood at 64.0 in May. A reading above 50 indicates growth in the services sector, which accounts for two-thirds of U.S. economic activity.

"With supply constraints showing no sign of letting up, businesses continued to pay more for inputs."

"The continued elevation supports some economists’ view that higher inflation to prove to be more persistent than currently envisioned by the Federal Reserve." by Lucia Mutikani for Reuters

The economy has been hit by labor and raw materials shortages as it re-opens after a year of disruptions caused by the COVID-19 pandemic. Many businesses have been caught off guard as input prices have risen and workers are scarce.

"Struggles among companies to find suitable workers hampered employment growth in June, [...] Although strong, the rate of job creation was the slowest for three months. Pressure on capacity was reflected in a solid rise in backlogs of work." IHS Markit by Emily McCormick for Yahoo!Finance

Fed Chair Jerome Powell has stated repeatedly that higher inflation will be transitory, noting that supply chains will need to normalize and adapt. On Friday, the government reported that non-farm payrolls increased in June by 850,000 jobs, the largest gain in 10 months.

BENCHMARK'S TAKE

  • Fear for the virus, generous support programs and pandemic-motivated changes have deeply impacted the labour market and slow down the recovery
  • Global supply chains have also been disrupted and drive up import prices which are then (sometimes) passed on to consumers
  • In the longer run, we expect supply chain issues to get cleared. However, the labour market might take longer to normalise as both workers and employers get used to the new conditions

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Toa Heftiba on Unsplash.