Today, Amazon and Apple announced the limited supply of labor and slow-moving supply chains will hamper fourth quarter top line and bottom lines. This should be a major wake-up call for investors and executives on the state of our global economy. Amazon and Apple are unique in that each exerts high control and even ownership over its respective supply chains. Each also has large capital reserves and a strong ethos of satisfying customer expectations. And still, each is experiencing headwinds. Why?
Reason 1: Workers in Manufacturing Hubs are Still Suffering from COVID, Broadly
The first response is COVID, which is partly the answer but not fully. With new COVID cases falling and widely available vaccines in the US, it appears that the acute issues of this maelstrom are no longer at work in the US. However, COVID has been a destroyer of lives and livelihoods in many other parts of the world that did not have quick and widespread access to vaccines, and that storm is still ragging. In fact, many Factories in China and Vietnam report that many workers have returned to villages to care for ill family members or have became so ill themselves that they could not work. Indeed, in many countries, the percentage of people fully vaccinated remains low. This is especially the case in many countries that supply the US with manufactured goods. Our World in Data reports the following for vaccinations by countries:
Reason 2: Shipping is in Turmoil
Much has been made about the inability of cargo ships to unload valuable cargo on the West coast of the US. Indeed, there is a great demand to ship goods and the price to ship a container across the Pacific has increased 6-7X! This is driven by a lack of workers, increases in energy prices, and the fear (and reality) of inflation.
Reason 3: Some 2 Million Plus Americans Have Left the Workforce!
The Federal Reserve of Kansas City did some fantastic research that showed over 2.1 million Americans have retired earlier than expected, as a result of the COVID crisis.
Indeed, these workers are working age and would probably have remained working if not for the effects of COVID. One must wonder if these people will ever return to the workforce. I doubt it. With the increase in their 401k balances, the increase in home values, and the stresses and dangers of working in a COVID reality, I believe many Americans have left urban areas for smaller and less expensive retirement communities. In doing so, they have sold properties at all-time highs in urban areas, moved to lower cost of living communities and begun retirement earlier than expected. This is good for them, probably. But this suggests they are unlikely to return to the workforce anytime soon. This is supported by some analysis of growth in communities. Research by Rocket Mortgage shows that the fastest growing communities in 2020 and 2021 (as a percentage) are smaller sized communities in the West and South. It is consistent with the US Census Bureau research that shows large urban areas in the North and Midwest giving up population. Consider the following map of county population growth in the US (See Business Insider to check your county of interest). Notice the counties adding people and those giving up people. A great deal of people have moved out of large urban areas into counties of the South and West. If pay raises and jobs will not make them return, then what will make them return?
So, many, many Americans have left work – permanently. They sold their homes and bought retirement places. They are retired or have begun different work in semi-retirement. They are unlikely to return to their previous office, factory, store, hospital, restaurant, school, or warehouse jobs in urban areas. Many factory workers in Asia have abandoned their strenuous factory jobs and are living with their families outside of urban areas. They have all Gone Fishing, as they say down South. And they ain’t coming back anytime soon. Amazon and Apple are just two of the first to show the effects of this. Pay raises, tuition subsidies, flexible work from home plans, and other perks have been offered, but the fish are biting and the work can wait. Expect many, many more firms to struggle with labor and supply chains.
Bait your hooks, invest in automation, raise salaries and get ready for labor shortages and supply chain issues for quite a while.
About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Associate Teaching Professor of Marketing at the Foster School of Business of the University of Washington. He has worked with many professional sports teams and leading marketing organizations through the Analytics Consulting Lab, an experiential class that he founded and leads at Foster.
His most recent and award-winning book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data through digital strategies. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.