American Metals Supply Chain Institute: June 2021 Market Update

SEATTLE (Scrap Monster): With the country nearly fully reopened, the economic recovery is continuing, but concerns about inflation are growing. 

The economy added 559,000 jobs in May, lowering the unemployment rate to 5.8 percent, according to the Bureau of Labor Statistics. This, though, is still more than 2 percentage points above the pre-pandemic level as millions of lost jobs remain unrecovered. 

The bureau noted that, “Notable job gains occurred in leisure and hospitality, in public and private education, and in health care and social assistance.” 

Despite the relatively high unemployment rate, many employers are reporting difficulty in filling open positions. Tactics to address this vary, with at least 25 states (all with Republican governors) choosing to drop the extra $300 in weekly unemployment benefits that have been funded by federal stimulus legislation through Labor Day.  The GOP governors argue that, with business operations no longer limited, higher unemployment checks serve as a disincentive to unemployed Americans who might otherwise find jobs. As Alabama Gov. Kay Ivey said, “Among other factors, increased unemployment assistance, which was meant to be a short-term relief program during emergency related shutdowns, is now contributing to a labor shortage that is compromising the continuation of our economic recovery.” 

Democrats generally reject that argument. U.S. Secretary of Labor Marty Walsh said, “Working people across America are eager to work, but workers also told me about the challenges they and their families face – finding affordable childcare, caring for elderly parents and grandparents.” Walsh’s agency reported that, even as the coronavirus threat wanes, 2.5 million people in May reported that they were prevented from looking for work by the pandemic. 

There are some signs that employers are responding to the situation by increasing wages, particularly in the leisure and hospitality sector – among the hardest hit by the pandemic restrictions – where average hourly earnings rose 5 percent just from January to May, according to the Labor Department. For non-managers, the jump during those four months was 7.2 percent. 

With the economy heating up and wages rising, some economists are warning of inflation. The Consumer Price Index in May was 5 percent higher than it was a year earlier, the sharpest increase since 2008, according to the Labor Department. In May 2020, the country was, of course, in a recession, but even then, the year-over-year CPI increase was low, but not negative, so a 5 percent jump is still notable. Plus, this year, from April to May alone, prices jumped 0.6 percent. 

Supply chain problems, such as a global semiconductor shortage, are among the factors pushing prices upward. Some argue that such difficulties are an inevitable result of unprecedented conditions in which businesses are quickly trying to ramp up operations, as opposed to progressively expanding them as they would during a normal recovery. If this is the case, inflation could be only a temporary issue. 

The Federal Reserve, following the June meeting of its Federal Open Market Committee, acknowledged that “inflation has risen” – though it attributed this to “transitory factors” – but indicated that interest rate hikes are not imminent. 

In 2020, Fed Chairman Jerome Powell reassured markets by saying that the central bank was not even “thinking about thinking about raising rates.” After the June meeting, Powell said, “You can think of this meeting that we had as the ‘talking about talking about’ meeting.” 

Business confidence remains strong, despite the supply chain and labor shortage challenges. The Institute for Supply Management’s Purchasing Managers Index increased a half-point to 61.2 from April to May, even as “Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand.” 

“Record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” the chair of the institute’s Manufacturing Business Survey Committee said. “Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing growth potential.” 

Consumer confidence also remains high, with The Conference Board’s Consumer Confidence Index coming in at 117.2 in May, closing in on the 130-plus it was at before the pandemic. A separate measure from The Conference Board, though – the Expectations Index – recorded a decline. The organization’s senior director of economic indicators explained that “consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead.” 

Housing starts in April, according to the Census Bureau and the Department of Housing and Urban Development, fell 9.5 percent from March. They were 67.3 percent higher than in April 2020, a historical aberration resulting from that being the first full month of lockdowns. Construction during the past year has suffered from high lumber prices, but those costs have started falling, which could bode well for the industry. The Wall Street Journal reported on June 15 that lumber prices for July delivery had fallen 41 percent from early May. 

The National Association of Realtors reported that existing home sales in April fell for the third straight month, this time by 2.7 percent from March, with the group’s chief economist noting that “housing supply continues to fall short of demand.” 

“We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes,” he said. “The falling number of homeowners in mortgage forbearance will also bring about more inventory.” 

The median existing home price increased for the 110th straight month on a year- over-year basis, reaching $341,600, more than 19 percent higher than in April 2020. 

The Dow Jones Industrial Average closed May at 34,529.45, recording year-to-date gains of 12.8 percent. The S&P 500 Index was up 11.9 percent on the year at 4,204.11 at the end of the month. 

The U.S. dollar on May 31 was trading at 0.82 euros, 0.7 pounds, 109.48 yen and 6.37 yuan. 

As restrictions are lifted and travel, crowded bars and restaurants, full sports stadiums, and all of the other indicators of normality return, the U.S. economy is trying to go from 0 to 60 in record time. The rest of the world, though, may be acting as a governor. For most Americans, the pandemic has essentially ended, but in many less-developed countries, vaccinations are just beginning – if they have started at all – lockdowns are still in place and economic activity remains dampened. Given the global nature of the economy, this is contributing to supply chain challenges in places, like the United States, where demand is suddenly skyrocketing. The resulting price increases could further complicate the economic recovery if they prove to be more than short-lived. The United States and other members of the G7 have announced plans to distribute hundreds of millions of vaccine doses to poorer counties. As important as this is to public health, it could also have more than a little impact on the world economy. 

Courtesy: https://amsci.us