A customer wearing a protective mask loads lumber at a Home Depot store in Pleasanton, California, Feb. 22, 2021.
David Paul Morris | Bloomberg | Getty Images
The U.S. economy is trying to restart its engine after tumbling into its deepest recession in generations, but a variety of supply chain constraints are threatening the country’s rebound.
The country faces major shortages in everything from labor to semiconductors, lumber and packaging materials. Not even swimming pools can be counted on this summer with the U.S. running low on chlorine. The scarcity left and right is not only preventing the economy from reaching its full potential, but it’s also raising fears of higher inflation as companies are forced to hike prices amid the low supply.
People swim in a pool at a country club in Bloomfield Hills Township, Michigan, U.S., on Monday, June 8, 2020.
Emily Elconin | Bloomberg | Getty Images
“These shortages, both labor and non-labor, will affect the speed under which the economy recovers,” Barclays head of U.S. economics research Michael Gapen said. “Labor and non-labor inputs are complements in production. You need both. If I can’t get my semiconductors to make my autos, then I don’t necessarily need to hire more labor right now.”
The U.S. labor force participation rate remains well below pre-pandemic levels as many Americans have yet to go back to work. This is partly due to generous unemployment benefits and childcare duty.
Meanwhile, manufacturers are struggling to catch up with a jolt in demand amid supply crunches in components and raw materials. This has stalled the rebound across broad swaths of the economy from housing to services, tech, autos and leisure.
“This is going to be a longer process coming out than when it went in,” Gapen said. “Like the global economy is recovering at an uneven pace, it’s likely that the U.S. economy is going to do the same. There are some kinks to still work out in the system.”
’10 million jobs short’
While the labor market is ready to snap back, there appears to be a lack of available workers to keep powering the grand recovery.
Hiring was a huge letdown in April, with nonfarm payrolls increasing by just 266,000, compared to a Dow Jones consensus estimate of 1 million jobs.
“This is a labor market that is 10 million jobs short of where it should be. But unlike the normal shortages that we have, I think this is just as much about a shortage in labor supply as it is about a shortage of labor demand,” said Jason Furman, an economist at Harvard University and a former Obama administration advisor.
Companies are struggling to hire workers at a time when Covid infection risk persists. Federal jobless benefits, as well as child care obligations with many schools still closed, could be preventing many Americans from re-entering the labor force.
The labor force participation rate plunged to its lowest level since 1973 in April 2020 as the pandemic kicked a massive number of workers out of the jobs market. While the rate has edged higher in the following months, it is still stubbornly below pre-Covid levels — 61.7% in April versus more than 63% before March 2020.