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.

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.

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.

Indoor Air Quality: The Next Infrastructure Shift?

If we designed a healthier waste, sewage, and water system to make cholera history…

If we installed window screens, used pesticides, and managed standing water to reduce insect-borne illnesses such as yellow fever, malaria, West Nile, Dengue, Zika, and others…

How did we manage to forget indoor air quality?

Was it because allergies were seen as seasonal or easily treated?

Was it because colds and flus were seen as something that didn’t remain in the air, but had more to do with spread by contaminated contact?

Or perhaps illnesses stemming from indoor air quality were seen as mostly just irritating for most people so something we lived with rather than addressed directly?

With the COVID-19 pandemic, the construction industry along with building owners might be finally taking indoor air quality – especially filtration and ventilation – seriously as a public health measure in buildings everywhere. The pandemic made more consumers aware of the difference that appropriate ventilation and filtration can make in the health of building occupants.

Increasingly, schools, offices, retail stores, and restaurants are using these improvements to market their location as safe and as a place people can feel more comfortable working in-person, lingering over dinner and drinks, browsing sales racks, or bringing their children indoors. Similarly, many also promote their cleaning processes or list the brand of disinfectant they use to communicate that this is a safe location.

LEED certified buildings more specifically consider filtration and ventilation. However, most buildings are set to minimum code requirements (which are typically based on standards developed by ASHRAE) and are most interested in heating and cooling capacity. Will this be the moment that turns high level IAQ issues into a priority for all buildings, including retrofitting existing buildings? Freedonia analysts continue to monitor changes in thinking – from building codes to costs to owner/occupant demand.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including Global HVAC, Global Filters, Consumer Air Treatment Systems, and Indoor Air Quality Equipment: Air Treatment & Ventilation (coming soon). Freedonia Custom Research is also available for questions requiring tailored market intelligence.

Climate Change & COVID: Pandemic Habits that Helped or Hurt the Planet

With the recent publication of the Sixth Assessment Report from the United Nations’ Intergovernmental Panel on Climate Change, conversations turned from pandemic to environmental impacts. However, the two are intertwined in many ways.

Because of the pandemic, people in many parts of the world made significant changes to how they live, work, play, and shop. Many consumers have also shifted their shopping priorities, whether temporarily or not. Businesses also changed how they operated. These shifts shows that major sudden changes in lifestyle and business practices are not only possible, but sometimes quite beneficial on many levels.

For instance, companies and governmental agencies thought carefully about which employees needed to be on-site and who could work remotely from home, which resulted in  fewer miles driven and reduced gas consumption in 2020.

However, disposable carryout containers and utensils proliferated as takeout dining increased. That, along with the temporary (in most, but not all places) shift to disposable retail bags, led to more petroleum-based single-use plastic packaging ending up in landfills, as many of these bags are not recyclable. While some coffee shops and grocers are bringing back their reusable cup and bag programs, it will take some time for consumers to return to their pre-pandemic habits with reusables.

Climate change remains front of mind. 2021 has so far brought major weather events including the Texas ice and deep freeze event in February, an expansive wildfire season and dangerous heat out west, and a challenging hurricane season that has so far included major flash flooding in the northeast. As people are uprooted by these events and forced into close living quarters with people from multiple households (whether multigenerational or in emergency centers), they can become coronavirus spreading events as well.

Freedonia analysts remain on watch for disruptive events as well as innovations that could provide solutions.

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.

  Consumer Goods      Industry Studies    

Declining Retail Sales Among Building Materials Distributors: A Time to Worry?

The recent release of the July retail sales report showed declines in retail sales for many segments of the economy, and the building materials and garden equipment and supplies segment was no different, posting a decline of almost 9.0% from the June retail sales report. While overall retail sales in the segment were still much higher than last year – a 16.4% increase over that of July 2020 – the steep fall in retail sales in the segment has people wondering if this portends a downturn in overall building construction activity.

However, it must be noted that there are a number of explanations for the decline, key among them:

  • the retreat in lumber prices from their record highs seen earlier in the year – a key share of sales for many building materials retailers and distributors
  • the elimination of many state-level unemployment benefits and stimulus packages – many consumers have less discretionary income and will be less likely to invest such items as home goods and lawn and garden consumables
  • shoppers’ concerns about contracting the Delta variant of the coronavirus – many consumers stayed home and ordered products online or opted to delay their purchases for the time being

Retail sales by building materials and garden equipment and suppliers are expected to remain at a much higher rate compared to last year, as the bullish housing market and high level of consumer interest in DIY projects will continue to propel sales of lumber and many other construction products. However, for the rest of the year, retail sales in the segment may continue to fall, as lumber prices continue to remain at more historically normal levels and the advent of winter weather will affect construction activity, especially in the northern half of the US.

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.