Supply chain turmoil, explained

Supply chains are disrupted, inflation is rampant and inequality is increasing

By joseph cotton, education and enrichment coordinator

Everyone seems to know that the economy is weird right now.  As COVID-19 causes unique disruptions to the economy, the reasons why can be hard to understand without the right context. This article will update you on three major themes that are affecting the economy.

Photo courtesy of The Big Issue
The economy has been strongly affected by COVID-19, from supply chains to inflation to economic inequality. Firms such as Procter & Gamble are hiking prices, and computer chips are more expensive.

1. Supply chains are Bottlenecked

Since the 1990s, the U.S. economy has shifted away from manufacturing in favor of more service-oriented industries. Because we are making fewer products on our own soil, we have become more reliant on imports. 

When COVID-19 first hit, many of the countries with large production capacities — most in Southeast Asia — were hit the hardest. In response to health measures, both producers and logistics companies were forced to cut production and exports.

Now that the COVID-19 situation has stabilized in many of these countries, production has rebounded. However, getting those products out of ports is still an issue. It has become harder to get shipping crates back to major ports in Southeast Asia. As COVID-19 makes moving products domestically more difficult, international shipping containers are required to move further inland to get the products where they need to be.

These problems are exacerbated when there is a COVID-19 outbreak at a key point in the supply chain.

2. Inflation

Inflation refers to the average increase in prices for goods in the economy. The Federal Reserve targets an inflation rate of 1 and 2 %. While the headline number for inflation is high at 5%, that number does not tell the full story; some products have become cheaper while others have become more expensive.

The most notable price increase has been in computing chips. Supply shortages of these crucial components are reflected in several different products. For example, cars use several computing chips and have become significantly more expensive.

Consumers have also seen an increase for their grocery bills, especially for foreign products. 

Domestically, meat packing facilities have been particularly susceptible to the COVID-19 outbreaks, causing an increase in prices for meats.

Personal products have also seen a price increase. Cincinnati company Procter & Gamble recently announced that they would increase prices across the board.

Many fast fashion retailers have seen prices increase due to the fact that most clothes are produced in Southeast Asia. Formal clothes, though, have seen a price decrease, because more people are working from home.

It’s not all bad news, though. Certain goods have actually gotten cheaper due to COVID-19. Specifically, rent and electronics that don’t use a specific type of computer chip — such as TVs and audio equipment — have seen a slight decline. 

Additionally, the labor market has stayed hot even during the pandemic. You may have heard that a labor shortage has been sweeping the economy; this means that firms need to compensate workers more for their labor. This is good news for anyone looking for a job — you should be more aggressive when asking for pay raises and negotiating wages and salaries.

3. The rich become richer, and the poor become poorer.  

While billionaires have increased their share of wealth by over a trillion dollars since the start of the COVID-19 recession, the bottom 25% have seen a significant drop in earnings. The reason for this lopsided recovery is that the bottom 25% in the wealth distribution relies on jobs that have become scarcer during COVID-19, whereas wealthier people have exposure to the stock market, which has recovered strongly since the start of the pandemic.