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As the U.S. economy restarts from the pandemic, parts of it are severely broken


A worker operates a forklift to move bundles of Hampton lumber for a shipment order at Burton Lumber in Salt Lake City, Utah, on Thursday, May 6, 2021.

George Frey | 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 is faced with 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 also raising fears of higher inflation as companies are forced to hike prices amid the low supply.

“These shortages, both labor and non-labor, will affect the speed under which the economy recovers,” said Michael Gapen, head of U.S. economics research at Barclays. “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 still remains well below pre-pandemic levels as many Americans have yet to go back to work 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, stalling 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’

The labor market is ready to snap back, but there appeared to be a lack of available workers to continue to power the grand recovery.

Hiring was a huge letdown in April with nonfarm payrolls increasing by just 266,000, compared to a consensus estimate of 1 million jobs per Dow Jones.

“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. Meanwhile, federal jobless benefits, as well as childcare 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 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.

“We have job openings at record levels, we have workers voting for their confidence in labor markets with near-record levels of quits,” Furman said.

“If you look at April, it appears that there were about 1.1 unemployed workers for every job opening. So there are a lot of jobs out there, there is just still not a lot of labor supply.”

Companies raise alarm bells on chip shortage

Ford Motor said that the chip crunch slashed first-quarter vehicle volume by 17%, hitting 2021 free cash flow by $3 billion. CEO Jim Farley warned that the impact to production will get worse before it gets better.

Tesla CEO Elon Musk said the electric carmaker suffered “some of the most difficult supply chain challenges” in the firm’s history in the first quarter.

“Insane difficulties with supply chain with parts – over the whole range of parts. Obviously, we’ve heard about the chip shortage. This is a huge problem.” Musk said on an April 26 earnings call.

It’s not just electronics and autos — companies of all types are updating investors on the fallout of the semi crunch. Chips have become such a ubiquitous component to wide-ranging products that firms selling medical devices, chemicals, apparel, and even tobacco are all sounding the alarms, according to the analysis.

Lumber prices driving up home costs

Brooks Mendell, President and CEO of forest industry consulting firm Forisk, said on CNBC’s “Worldwide Exchange” Monday that consumer demand for lumber did not slow down even when many manufacturers were forced to halt operations.

“Beginning last year when Covid and the recession hit, the sawmills slowed down, projects that were expanding mill capacity slowed down,” he said. “But meanwhile everybody at home kept doing their projects, home demand continued, and repair and remodeling just kept cooking along.”

As a result of the shortage, the price of an average new single-family home has increased by nearly $36,000, according to an analysis by the National Association of Home Builders.

“This unprecedented price surge is hurting American home buyers and home builders and impeding housing and economic growth,” said NAHB Chairman Chuck Fowke in a statement.

Packaging materials costs soar 50%

Chemical fire shrinks chlorine supply

Americans may be forced to seek alternatives this summer such as converting pools to saltwater systems, but those, too, are in short supply.

— CNBC’s Tom Franck contributed reporting.

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