By Thomas Gryta and Theo Francis
Consumers are splurging on cars and furniture -- and facing
extended waits for delivery. Restaurants and gyms are reopening --
and struggling to find workers. Factories and home builders are
trying to ramp up -- but are short on semiconductors or raw
materials.
Federal Reserve officials and most economists largely play down
supply and cost problems as transitory, saying they aren't
widespread enough to threaten corporate profits or the broader U.S.
economy for long, especially amid strong sales.
But problems are acute for some individual businesses and even
entire industries. Executives from gadget giant Apple Inc. to
mattress seller Tempur Sealy International Inc. said last week that
supply-chain issues could curb their growth in the short term.
Others have responded by raising prices on everything from diapers
to air conditioners.
The Covid-19 outbreak paralyzed both supply and demand last
spring. This spring, vaccinations and government stimulus have
created imbalances in many sectors.
"The very sudden stop to the economy, and then the very quick
restart, has created a lot of havoc -- a lot of businesses have
gotten caught flat-footed," said David Lefkowitz, head of Americas
equities for UBS Global Wealth Management.
Gross domestic product, a measure of the economy's health, grew
at a 6.4% seasonally adjusted annual rate for the first three
months of the year, the Commerce Department said Thursday. At the
same time, Ford Motor Co. and other auto makers are halting some
production because of semiconductor shortages, Caterpillar Inc. and
other manufacturers are working to counter rising prices and short
supplies of needed materials, and Domino's Pizza Inc. and other
chains are struggling to find enough workers.
"I get it that the Fed doesn't want to recognize inflation, but
there is inflation," Dover Corp. CEO Richard Tobin told investors
on April 20. Raw-material prices increase the cost of components
the industrial manufacturer buys, he said, and finding workers
could raise the price of keeping factories running. "Clearly, at
the assembly level, labor availability is becoming a problem, and
that is beginning to start to move up labor costs over time," he
said.
Dover, which makes refrigerators for supermarkets and pumps for
gas stations, isn't the only company facing a tight market for
American workers. Darden Restaurants Inc., which operates Olive
Garden, LongHorn Steakhouse and other chains, is raising wages to
attract restaurant workers. Amazon.com Inc. said last week it will
dole out raises to more than 500,000 workers this spring instead of
next fall as competition for workers picks up.
U.S. job openings have already recovered to pre-pandemic levels,
despite some eight million fewer jobs in the economy, and 42% of
surveyed companies have told the National Federation of Independent
Business, a small business trade group, that they have at least one
open position that has proved hard to fill -- the highest level
ever, noted Sarah House, a senior economist with Wells Fargo's
corporate and investment banking unit.
"The demand for labor has rebounded faster than the supply,"
said Gregory Daco, chief U.S. economist at consulting firm Oxford
Economics. "That does not mean that this is a structural issue. I
think that supply does respond -- it just takes a bit longer."
Economists tend to differentiate between unremarkable price
increases within some parts of the economy, and inflation, where
prices across economic segments rise in a self-perpetuating cycle.
Labor shortages are likely to moderate as declining health risks
and rising wages bring people in from the job market's sidelines,
many economists argue. Similarly, supply shortages should ease as
global production picks up to meet demand.
But companies want to avoid losing sales or market share. Some
product shortages stem from sharp production cuts last year when
the pandemic's economic damage was most intense, plus severe
weather in Texas and Taiwan. Others reflect tight capacity that
can't be quickly expanded, or transportation problems created by
port delays and a shortage of shipping containers.
Tempur Sealy said quarterly revenue would have been $80 million
to $100 million higher without a shortage of the chemicals and
innersprings that go into its beds. Even so, its first-quarter
sales jumped 27% to $1.04 billion. The company said it has resolved
its innerspring shortage and expects to have largely resolved
chemical shortages by the end of this quarter.
Apple cautioned that a shortage of chips would crimp how many
iPads and Macs it can pump out in the current quarter, reducing
revenue by roughly $3 billion to $4 billion. Still, Apple reported
record first-quarter profits on surging sales.
Many companies hit hard by wage and supply pressures are in
booming industries, said UBS's Mr. Lefkowitz. "The revenue strength
is more than making up for some of those challenges on the cost
side," he said. "Profit margins are coming in better than
expected."
Caterpillar reported increased demand for large mining and
construction equipment but said shortages of raw materials,
semiconductors and transportation may make it hard to meet.
"We're working very hard to avoid or minimize allowing
supply-chain issues to lead to production shortfalls," Chief
Executive Jim Umpleby said on a conference call Thursday. "We're
not saying that we'll definitely have a problem. We want to flag
that it's a risk that we're managing."
The company's finance chief, Andrew Bonfield, said needed
components are often available but transportation difficulties
leave them waiting to get picked up.
Trucking company J.B. Hunt Transport Services Inc. is buying
more shipping containers, trailers and support equipment to address
transportation bottlenecks. It is also increasing wages and
benefits to attract and retain truck drivers.
"The industry is facing the most challenged driver market that
I've seen in my 37-year career at J.B. Hunt," said operating chief
Nicholas Hobbs.
Domino's Pizza needs more drivers, too, CEO Richard Allison
said. The pizza chain is working to increase the number of
deliveries per hour for its drivers, keeping them in their cars
more, so they can earn higher pay.
Supply-chain issues will take time to resolve. Church &
Dwight Co. CEO Matthew Farrell expects tight supply and higher
costs to continue for the rest of the year. The maker of Arm &
Hammer and OxiClean has raised prices on certain products and plans
to cut back on discounts.
Sherwin-Williams Co. CEO John Morikis said that work to minimize
the impact on customers will stretch through the summer because raw
material shortages prevented normal inventory increases during the
paint maker's first quarter. He projected demand would remain
strong for the rest of the year.
"We're confident in our ability to manage through transitory raw
material availability and cost inflation issues," Mr. Morikis said.
"The pace at which capacity comes back online and supply becomes
more robust remains uncertain."
Write to Thomas Gryta at thomas.gryta@wsj.com and Theo Francis
at theo.francis@wsj.com
(END) Dow Jones Newswires
May 02, 2021 09:27 ET (13:27 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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