As we emerge from pandemic slowdowns and disruptions, there are still "lions, tigers, and bears — oh my!" that manufacturers face. The monthly Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary released in February notes that in economic terms, it has been "inflation, supply chain, and labor — oh my!" for several months, but at least two of these may be letting up in 2022.
First, inflation. Inflation is the highest it has been in decades: 7.5%. The report reveals the reasons why this is the case: "For the better part of the last four decades the US was able to essentially export inflation . . . If one was facing higher labor costs and higher production costs the easiest response was to either produce or source overseas where the costs were dramatically lower." Now, many U.S. companies are undoing this in light of rowing costs from overseas suppliers and supply chain upheaval.
And high inflation rates and the supply chain are recovering. While the "stimulus effort dumped the equivalent of the Japanese GDP into the hands of consumers," they were unable to continue normal purchasing habits, and cash tied up in savings contributed to inflation. But now, consumers have fed most of that cash back into the economy. Additionally, producers are slowly catching up with demand, which will stabilize commodity costs from contributing to inflation. The last contributing factor to inflation is less positive; the report notes that cost of labor -- having risen over the course of the pandemic -- are unlikely to come down, which will likely inhibit the full return "back to normal." Still, even the supply chain's 2021 recovery is cause for celebration, having been "far more aggressive than anyone had expected and producers were unprepared. They are starting to gain ground and by mid-year they are expected to have caught up with the majority of current consumer demand. The primary issue now is China."
Unfortunately, the retirements of key workers as well as a simple lack of hands put pressures on labor costs. Paired with increased wage demands, "Skilled workers have more leverage than they have ever had and the number one means by which companies are expanding their workforce is by poaching from one another." This leads to paying new hires and longtime employees higher wages to disincentivize job hopping.
The report concludes, "labor costs soared by over 5.0% last year and these costs are heading in the same direction in 2022."While we may not be out the thicket yet, there is still hope along two of the three economic indicators.
Check out the full report to see specific index growth and analysis which is available to IHEA member companies. For membership information, and a full copy of the 12-page report, contact Anne Goyer, executive director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.
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