You can feel it in the air. Our days may still be warm, but the chill in the wind is unmistakeable. Without a doubt, the autumn season is moving in, and with it, the return to the school year and a renewed focus on business activity. As we settle into a new routine, what are the key economic factors to keep our eyes on?
Infections are top of the list. Unfortunately, the alarming rise in Delta variant infections present the biggest risk to business flows as we move through fall. Canadian exporters are advised to remain informed on the infection numbers for supplier nations and, of course, for destination nations and jurisdictions—with particular emphasis on U.S. state-level activity. Earlier success in getting infections down led to a shift in focus to hospitalization and death-rate data. Broad lockdowns aren’t expected to be the main strategy for dealing with new significant outbreaks; instead, the focus is on vaccinations and vaccine passport systems in hopes of reducing infection and hospitalization numbers. Fingers crossed for ultimate success.
Supply chains are a close second. Infection data aside, the economy is still in fast-recovery mode, and having a hard time keeping up with orders. Capacity is further complicated by the pandemic’s impact on facilities that happen to be pivotal supply chain points. If that weren’t bad enough, seaborne shipping is still struggling to keep up with global flows of goods, both in terms of vessels and containers. Ultimately, there’s enough capacity to meet current demand, as many are still trying to get back to pre-pandemic levels of activity. We have the capacity, it’s now a matter of getting it all up and running.
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Inflation continues to run hot. No kidding, with the pressures on available goods peaking in advance of the key autumn retail season. Large buyers aren’t taking chances, using their buying clout to ensure their spots at the front of the line. Smaller operators worldwide are going to have to be creative to ensure their orders are met and delivered on time. What it’s boiling down to is prices: it seems that a broad range of goods are being bid up, and it’s not just upstream business inputs. Those are rising quickly enough to have put pressure on U.S. consumer prices for six consecutive months now, and the heat is also rising in Europe, Canada and elsewhere.
It’s getting scary, as the knock-on effect is reaching wages and becoming more embedded. Keeping our eyes on labour market developments will be critical this fall—not just because of wages, but as labour market shortages are endemic. COVID-19 has led to a lot more online job shifting, and hanging on to talent has become increasingly difficult. Unemployment rates are sinking toward previous lows, and mechanization is also increasing the pressure for highly-skilled labour. Again, smaller players will likely face greater duress.
Thankfully, there’s lots of money in the system. Government stimulus is continuing apace. If the beginnings of monetary tightening are just being discussed, we seem to be a long way yet from fiscal tightening. In addition, I continue to highlight the massive piles of extra cash that have accumulated in private business and consumer demand deposit accounts, apparently the world over. In the United States, this adds up to 17% of gross domestic product (GDP); in Canada, it’s more than 13% of GDP. The numbers are of similar magnitude in Europe. If this money all comes back into the market at once—which it could do once consumers and businesses feel the coast is clear—then it will unleash demand that’ll make current constraints look tiny by comparison. A good problem to have, at least in the short run. Businesses need to know that this is on the way, while also working out a strategy for making sure that orders can be met.
Clearly, if we have learned any lessons over the past 18 months, it’s that unplanned, unforecastable events can wreak havoc with our plans, and indeed, our future. There’s no guarantee that we won’t have further such challenges—let’s cross our fingers and hope that on this front, we have little more to worry about than the pandemic.
The bottom line?
Yogi Berra famously said that when you come to a fork in the road, you should take it. We have learned in recent months that we need to be ready for what gets served up. Flexibility, adaptability and creativity are paramount.
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