As Inflation Rises, Orders To Feed the US Supply Chain Feel the Squeeze

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Try as hard as he might, Biden has been unsuccessful at getting people to remain inspired by the U.S. economy. With inflation rising, the stock market rarely has a day it finishes positive, and store shelves sitting empty on certain things, the people are fed up. For the manufacturers and others within the supply chain, they have been feeling the pinch, but things are getting worse.

The need for U.S.-made capital goods is still growing but was exponentially less than projected for the month of April. This could be an indicator of businesses slowing on their replacement of equipment thanks to slowing business, inflation, and a shrinking bottom line. The Commerce Department issued the mixed report on May 25th, and it came right after a survey sent to factories about their growth. The companies’ responses indicated that manufacturers are moderate growth in their spending over the next six months.

Cooled demand and tamer inflation compliments of an aggressive fed policy have triggered a stock market sell-off and boosted U.S. Treasury yields as well as the dollar. Michael Pearce, a senior U.S. economist at Capital Economics in New York is confident in the ability of the economy to endure. “Rate-sensitive business equipment investment growth is beginning to slow. That is consistent with our view that economic activity is bending rather than breaking under the impact of higher rates.”

Core capital goods orders didn’t go up as much as expected, with modest decreases in bookings for fabricated metal products as well as electrical equipment, appliances, and components. However, the jump in orders for machinery and primary metals was significant and helps keep things in balance. Orders for computers and electronic products also barely increased. Shipments of core capital goods skyrocketed 0.8% last month after barely squeaking out 0.2% of growth in March. The core capital goods shipments can be used to calculate equipment spending for the gross domestic product measurement.

This doesn’t mean everything is fixed or that we’re even on the right track. Shannon Seery, an economist at Wells Fargo in New York sees a bit of a perfect storm going on. Not only do manufacturers have plenty of unfilled orders to keep factories running at full tilt, even in the event of a slowdown in demand, we also expect sky-high labor costs and limited availability of workers to motivate businesses to seek labor-saving technologies and support demand for equipment.”

The innovations with labor-saving technologies are coming out faster than we can implement them, and they aren’t exclusive to manufacturing, either. Restaurants are dealing with lower-than-expected staff, so waiters are being put in the kitchen to help cook or wash dishes in places across the country. Menus and paper receipts are being replaced by little table-sized payment kiosks. The same ones that can and will eventually eliminate the need for waiters and waitresses at low to mid-level restaurants.

This isn’t a surprise considering it has already arrived at fast food in different forms. Instead of the mini kiosk on your table, it’s a large one where you place your order on the touch screen, then wait for your number.

If you refuse to use it, many still will allow the worker to put it in at the register for you. Additionally, if you want to pay in cash, you take your receipt to them to get your food going. These cost-cutting measures are intended to increase their bottom line, without destroying your value. Now, they need to take these savings and put them back into the economy via higher worker wages.