The Covid crisis, and the government’s handling thereof, has led to a tale of two economies.
While the service and hospitality economies have tanked, there is a booming economy for manufacturers and distributors who are making and delivering products to consumers since vast amounts of discretionary income has been diverted from experiences (like vacations and concerts) to the purchase of things.
That has up-ended industry and distribution, both here in the United States and abroad at competing nations like China. Demand is strong and supply is low, not only for manufactured items, but also for their inputs. This has driven many costs to unprecedented, if not unconscionable, heights.
In response to those market conditions, which will be ongoing for the foreseeable future because of the pandemic and, then, perchance, the bettering of the economy as a whole, I told Confer Plastics’ customers last week that we will be instituting pricing hikes. Letters like ours are going out all throughout the food chain in multiple industries.
You have been and will be seeing the impacts.
Take for example, what has happened with lumber. There’s an explosion in demand because the stuck-at-home handyman wants to take on home improvement projects while sequestered, e-commerce retailers need more pallets to store and ship goods, and housing starts show no signs of letting up even in a strange economy because people are leaving cities. In April of last year, lumber was $350 per thousand board feet. Last week, the futures market had it pegged at just over $1,000.
Or consider plastic, which is in everything you buy and use – not only durable goods, but also the packaging in which you get your foods and beverages and the bottles that hold your Covid cleaning solutions. Those who produce material are being overwhelmed by domestic demand while at the same time they are being courted by foreign entities to provide its building blocks like ethylene. Because of that explosive growth in needs, high density polyethylene (the most common of materials) has doubled in price since last April and it could top out at two-and-three-quarters times the prices of last March in the coming weeks.
As ubiquitous as plastics are, the same can be said for corrugated. The boxes in which businesses ship or sell products, individually or in bulk, have seen relentless price increases in recent months totaling 25%. There’s an economic war underway for cardboard and the paper used to make it because of the incredible growth in e-commerce as an outcome of the pandemic. Disinterested in venturing into public and stuck at home with money to spend, consumers are having retailers like Amazon and Wal-Mart ship the world to them. Some believe that this will become the new norm, especially as the pandemic has sped up the demise of malls and brick-and-mortar stores.
Then, add the costs of getting goods from Point A to Point B. In this column I’ve often addressed America’s trucking crisis. For most of this century there have been too few drivers and trucks on the road. That situation has been compounded by e-commerce – there are many more shipments, large and small, to make. Bringing in resources and shipping goods are now at the mercy of intense bidding and lower availability. And, it’s at the mercy of diesel prices at the pump. You’ve seen it personally when filling your car with gasoline (diesel’s cousin): The national average of $2.64 per gallon is up 40 cents, or 18%, since Christmas, with experts anticipating $3 by summer.
Add to the mix labor costs which, unlike the others, are independent of Covid’s impacts. You are well aware of the ongoing fight to make the federal minimum wage $15 an hour. That’s old hat here in New York, where legislation was passed in 2016 with the goal of reaching $15 in various parts of the state in the early-2020s. It’s also old hat to many corporations that made a quantum leap in starting wages over the past couple years to create a $15 wage without government edict.
All these increases are leading to unsettling inflation for things that you want, but what about the things you need?
We may not need the latest and greatest toys and creature comforts, but we all need food. US consumers paid, on average, 3.7% more for food in January of this year than they did in the first month of 2020. Year-over-year increases in grocery costs have surpassed 3.5% every month since last April, the longest stretch of such heights in a decade. Kraft Heinz and Conagra are the latest food producers to warn that even more increases are coming.
All of these factors are contributing to what could be an absolutely frightening 2021 for consumers, producers and policymakers. Just when you think that there might be some normalcy on the way with vaccines and immunity, the reality of the dollar can really dampen the day. Those lucky enough to have jobs will see discretionary income cut, while the jobless will have to pinch even more pennies.
This out-of-control inflation gives me the “feels” of 2007 and early-2008. Those were the dawning days of the Great Recession. Let’s hope I’m wrong. We don’t need an economic collapse making the dark days of 2020-2021 even darker.
From the 22 February 2021 Greater Niagara Newspapers and Batavia Daily News