Chip shortage
Another prominent story related to supply chain issues was the so-called “chip shortage” referring to a lack of semiconductor components. Chips are used in virtually every digital electronic device today. Dating back to late 2020, a backlog of chip orders led to a shortage of many products including automobiles. Higher costs for new and used cars were another major contributor to the rapid increase in the overall inflation rate. Supplies of chips began to improve in 2022, due to a combination of increased production and a slowdown in sales of personal computers, smartphones and consumer electronics.3 That helped ease price pressures.
The new CHIPS and Science Act incentivizes construction of domestic semiconductor manufacturing plants. It includes a federal government financial commitment to support the development of the domestic semiconductor industry. “This represents a deeper investment in U.S. chip manufacturing infrastructure,” says Haworth. “It will take three-to-five years for these facilities to be online, so it doesn’t solve any immediate supply concerns should they arise.”
Labor shortages and other challenges
Some issues may persist because there are not enough workers to fill available American jobs. “While supplies and transportation hubs seem to be keeping pace these days, labor shortages may be the biggest issue affecting the supply chain,” says Haworth. Based on recent jobs data, approximately 1.2 positions are open for every available worker, demonstrating a need for more workers to fill available jobs.4 “The number of job openings is slowly creeping down and the gap of workers to fill available jobs is closing, but an imbalance remains,” says Haworth.
“The major challenge for many employers is whether they can attract and retain sufficient quality labor to meet their production demands,” says Hainlin.
Where we go from here
While events like the Red Sea attacks on private shippers add to specific supply chain concerns, there’s no clear impact on the broader inflation rate. “We’re not at the same point we were during the peak of supply chain issues several years ago,” says Haworth, “but there are some risks.” Haworth notes that while goods demand is relatively flat, “We also aren’t seeing a stockpiling of inventories of goods, so if demand suddenly picked up, a production ramp-up might be required.”
Despite higher interest rates, the U.S. economy demonstrated resilience in 2023, avoiding a recession. The economy grew by an annualized rate of 2.5% in 2023, an unexpected improvement on 2022’s growth rate of 1.9%. Growth slowed a bit, to an annualized rate of 1.3% in 2024’s first quarter.5 Persistent consumer demand and a strong job market continue to influence economic growth. Investors will closely monitor these data points in the months ahead to determine the impact on corporate profits and stock prices.
Talk with your wealth planning professional to determine how economic developments such as inflation trends may impact your own investment strategy and your long-term financial goals.