US & Global Economic Impact Analysis and Forecasts

Freedonia analysts and economists are sharing their insights on how major events are impacting different parts of the US and global economies.

Rising Lumber Prices; Again a Challenge to Construction Industry?

Over the past year and a half, the US building construction industry has been buffeted by a wide range of issues – COVID-19, shortages of labor and raw materials, and surging prices for materials when available. For many in the construction industry, high lumber prices were perhaps the most pressing issue. Given the ubiquity of lumber in construction jobs – from building decks to making structural framing – high lumber prices bedeviled builders, contractors, and consumers for most of the second half of 2020 and the first half of 2021 before prices returned to their pre-pandemic norms.

Now, however, lumber prices have started to rise again, causing angst among the construction industry. While prices – about $700 per thousand board feet – are far below the $1,700 peak seen last year, their rise – at a time when inflation is affecting so many other items (such as gasoline, fasteners, and other building components) – is a concern:

  • A prolonged surge in lumber prices may negatively affect home prices at a time when there is a shortage of affordable housing.
  • Consumers buffeted by rising prices for a wide range of consumer goods may cancel previously planned home improvement projects.
  • Contractors may sacrifice profitability to keep getting bids – a strategy that only works in the short term!

Some feel that this increase in lumber prices in a temporary blip – the onset of winter will bring a reduction in many construction jobs, allowing supplies to increase and prices to fall. Others, though, are concerned that this increase is a harbinger of another round of prices. Freedonia analysts will continue to monitor lumber prices and their effects on the construction industry as a whole.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly in the Construction and Building Products. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Is This the End for Lean Inventories & Just-in-Time Deliveries? Producers & Distributors Avoided Inventory Buildups During COVID-19 Shut Downs but Many Still Struggle to Catch Up

The just-in-time, or lean inventory, method that spread throughout the world over the past few decades met its match with the COVID-19 crisis. While lean inventory methods help factories, distributors, and retailers minimize costs, they place potential strain on the factories and logistics companies that must make and distribute the goods just-in-time. Avoiding excess inventory and/or carrying costs is one the main principles of JIT systems.

Producers, distributors, and retailers canceled orders amid production shut-downs and sharp shifts in consumer behavior with an uncertain outlook around March 2020. Then consumer shifts to cooking and working from home led to high demand for a wide variety of goods (e.g., items such as toilet paper and flour packaged for retail rather than foodservice, as well as electronics, lawn and garden products, and home improvement materials).

However, the modern global production and distribution system relies on predictability and isn’t built for surprise surges in orders or rapid shifts in demand – it’s more streamlined to deliver a steady level of orders via the “just-in-time” methods.

The fact that the JIT system can’t handle a huge crisis is one of the known drawbacks, but no one expected a large hit to multiple supply chains at once, and any system would face strains in such circumstances. Typical challenges for the JIT system usually involve natural disasters such as hurricanes that results in closed roads and factories for a few days.

However, this era has put unprecedented pressure on the system, after a global pandemic -- and the widespread understanding that this won’t be the last one – and the extended supply disruptions (e.g., hurricanes, polar vortex, floods, factory closures, and a container ship blocking the Suez Canal) and the downstream effects of port backups and trucking delays.

Is this the end of lean inventories? More companies – especially those burned by high profile issues such as computer chip shortages and volatile lumber pricing – are rethinking the process and reconsidering how their supply chains might look going forward. Maintaining larger stocks of inventories might cushion against supply shocks and pricing volatility, but requires investment in warehouse space and related operations and more focus on potential challenges (or a greater tolerance for risk of overbuying or waste).

If JIT required data to get the right supplies to arrive at the right time, so does maintaining enough stocks to hedge challenges without overshooting.

This shift is something that will play out throughout the economy. Freedonia analysts will continue monitoring the effects of adjustments made to supply chains and will continue to consider how future adaptations to logistical processes could work in various industries.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Logistics: Logjams at Ports Continue & Supply Chain Challenges Persist

The global economy has been experiencing supply chain challenges since the start of the coronavirus pandemic. Troubles have cascaded from factory shutdowns to shifts in unexpected shifts in demand levels for products and materials to port shutdowns, which result backups and container ships stuck in the “wrong” places as well as challenges in staffing port workers, truck drivers, warehouse personnel, and others. All the way, things were complicated by hoarding, stockpiling, pricing volatility, and severe storms that closed ports or processors of plastic materials or various types of fuel. Whew.

Now, even previously unheard of measures – such as the Port of Long Beach going to 24/7 operations in September and companies (such as Home Depot and Walmart) hiring out their own container ships – are not making for sufficient solutions.

The functional implementation of 24/7 port operations has made the move at the Port of Long Beach not as quick a fix as some hoped. It will be tested further in the coming weeks and months as the Port of Los Angeles also begins 24/7 operations.

Prices to ship a container from Asia to the US remain at historically high levels – reportedly rising from a few thousand dollars per container in mid-2020 to the $20,000-$30,000 range. These costs pose a challenge for large shippers and are effectively impossible for smaller importers, and many guess that these challenges and high prices will extend well beyond the 2021 holiday season and through 2022.

So what’s to be done?

Some companies are rearranging their supply chains, if they can, by shifting needed production to areas that run through less crowded ports or to countries closer to their destination. Those that can do so more easily already have production facilities or relationships with suppliers in these places.

Some companies are ordering earlier and stocking up. Is this the end of just-in-time supply? At least for now, it is. Of course, this requires having the warehouse space available and the data needed to plan further in advance for stocks, parts, and material inputs.

Some are pivoting their business. Those that can backward integrate into parts production or materials supply are looking at ways to do that. Those that can operate in a related field or shift production to something that is needed locally and right away (e.g., personal protective equipment) are doing so.

Some companies are waiting it out. This requires longer waits for needed parts, materials, packaging, or products and often higher prices to customers. The kinks in the supply chain will eventually work themselves out… just not as quickly as many would prefer.

Freedonia analysts will continue monitoring the effects of the supply chain challenges and the pivots businesses are making to keep operations moving as smoothly as possible.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Vaccine Mandates: Early Requirements Kick In, Questions About Enforcement Arise

So far, most industries that have had COVID-19 vaccine mandates kick in haven’t seen the kind of mass exodus of employees that some predicted. From NYC restaurants to healthcare facilities, government agencies, and police and fire departments, some employees have chosen to leave rather than get the vaccine. However, the impact has been more muted than initially expected, often representing a few percent of staff rather than 30-40% some surveys indicated.

Will that continue to be the case as President Biden’s planned Medicare rule ­– which requires all staff at skilled nursing facilities to be vaccinated – and as the broader mandate applying to employees of businesses with 100 or more employees kick in?

There are questions about how these rulings will be enforced, particularly in areas where vaccine resistance remains high even among those in local or government or law enforcement agencies. OSHA – tasked with the job ­­– is understaffed for enforcement, with only 862 inspectors to handle all regulatory actions the agency is responsible for as of early 2020.

However, it seems that many companies are interested in remaining in compliance. For many, there are benefits to putting a mandate in place. Companies and agencies that are able to get their vaccine numbers higher see reduced time off requests and fewer surprise shutdowns (for illness or quarantine), both of which  make staffing shifts challenging. Higher vaccine rates can also inspire increased confidence among customers and employees that the location is a safe place to be, even in person.  

Still, a number of companies continue to prefer carrots (incentives such as time off, cash bonuses, and prizes) over sticks (mandates). Some companies and agencies have explored a middle ground, placing an emphasis on frequent testing and mask mandates for those who do not get a vaccine, maintaining a level of protection while perhaps hoping that employees will find these alternatives inconvenient enough that they will get the vaccine instead.

This is something that will play out throughout the economy and Freedonia analysts will continue monitoring the effects.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Worker Shortages & Need for Efficiency Propel Automation, Big Data, & Other Changes in Agriculture & Mining

If there’s one thing the COVID-19 pandemic has made clear, it’s that the effect that worker losses can have on productivity. As immigration has been limited, workers have sought jobs less exposed to pandemic infections, and more employees have had to take time off for illness, quarantine, or family care, companies have struggled to maintain output.

In an economy challenged by worker shortages – particularly in industries that have long been supported by immigrants and migrant workers – automation and efficiency are very high priorities.

While software as a service (SaaS) and leasing over ownership is a main feature in high-tech industries that expect to see frequent upgrades and product improvements, innovations are moving even those markets that have long seen as low-tech industries in this direction. To keep pace and ahead of that trend, companies such as John Deere are seeking to fundamentally transform both their businesses and product offerings in coming years.

With technological innovation revolutionizing farming, forestry, construction, and mining, Deere argues that customers now require more than just a piece of equipment. This could include:

  • hiring out the equipment as part of a comprehensive solution for farms, quarries, or mines
  • pairing increasingly automated machinery capable of collecting a lot of data about operations with advanced complementary technologies
  • management tools
  • maintenance services

With farmers and facility operators too busy or not sufficiently trained in data analysis to make the best use of all the data generated, equipment suppliers could offer data analysis services and digital platforms to make actionable data clear. Such offerings could help facilities operate more efficiently and sustainably.

However, such an integrated suite of equipment, software, and services could run into the user-side pressure for right-to-repair. Farmers and other users of heavy equipment have found that high-tech versions of equipment cannot be repaired by themselves or even by local shops, resulting in increased downtime when a problem arises. Not having operational equipment is a real drag on efficiency and could result in precious time lost during planting and harvesting seasons. Still, if equipment can be kept operational longer with less downtime by using remotely assessed software, that problem could be negated at least to a degree.

Freedonia analysts are carefully watching innovations in automation, efficiency, and right-to-repair as a way  to stay abreast of industry trends.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly in the Machinery & Equipment area. Recent analysis is available covering topics such as Global Forestry Equipment, Global Mining Equipment, Global Off-Road Equipment Technology 2021, Global Power Lawn & Garden Equipment, and Global Power Tools, as well as Global Construction Equipment (coming soon). Freedonia Custom Research is also available for questions requiring tailored market intelligence.