ARTICLE
According to Mark Schniepp of the California Economic Forecast, “The GDP outcome for the July to September 2021 quarter was disappointing. And with year-to-date inflation running at 5.3 percent—the highest rate of inflation in 13 years—there are mounting concerns that the US economy may be heading into a stagflationary period of the business cycle.” Economic experts start to worry when inflation and a sluggish economic outlook can turn into “Stagflation,” something we haven’t seen since the 1970s in the US. Driving our consumption patterns is now a supply chain logjam at our ports. The post-pandemic supply bottlenecks represent a current shock because they have largely been unanticipated. So-called “shortages” are occurring where we can’t sell enough automobiles, pet food, or beef to consumers who want this stuff, reducing some production and output value. Meanwhile, the demand for labor remains extraordinary, the unemployment rate continues to decline, and general consumer demand for products does not appear to be leveling off as we head into the holiday spending season. The producer price inflation has now hit 20 percent year-over-year. This is the highest rate of inflation in producer (or wholesale) prices since 1974. To put this into perspective take a look at the Bureau of Labor Statistics latest news: https://www.bls.gov/news.release/pdf/ppi.pdf. The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services. As noted in earlier reports, the economy appeared to be in horrible condition in the spring of 2020; however, both the administration and Congress responded by passing a $3 trillion spending program to restore income to businesses, organizations, and workers lost from a shutdown economy. This was just the beginning of a massive fiscal policy response to the pandemic. In May and June of 2020, the economy bounced back. Conditions were not as bad as presumed and incomes remained surprisingly resilient, helped by the CARES Act, despite the unemployment numbers hitting record highs. Consumers then went on a buying binge and this is the fundamental impetus for the current supply chain block. I will get to that later. In December 2020, another $900 billion stimulus program was initiated. This included more money and PPP loan funding to keep businesses above water. Then another $1.9 trillion of spending was approved in March 2021. The US response to the pandemic has been an order of magnitude larger than the response to the 2008 global financial crisis. Last Friday, the House of Representatives passed a more than $1 trillion bipartisan infrastructure bill, sending it to President Biden, who gleefully stated he felt confident that Congress will also pass his second spending bill entitled, “Build Back Better.” The House plans to take the next step in passing the social spending and climate change plan. According to sources close to House Speaker Nancy Pelosi, they will try to approve the bill during the week of Nov. 15 once House members return from a weeklong recess. The infrastructure bill passed only after House progressives and centrists made a non-binding pact to approve the social spending plan this month. Five centrist Democrats said they would vote for the larger bill if a coming Congressional Budget Office cost estimate projects it will not add to long-term budget deficits. Some economists suggest that the infrastructure bill and the Build Back Better bill will generate excessive spending levels within the economy at a time in which the recovery would be better left alone. More massive government spending will likely exacerbate inflation by further stimulating already steady demand for goods and services, they predict. I am not sure that argument holds weight with the Biden Administration, Congress, and the American people when there is an unprecedented need to improve our infrastructure — housing, roads, bridges, highways, broadband connectivity, rail systems and airports, and water projects. However, the debate is still open as to what will be in the final Build Back Better spending package. Now back to the logjam at our ports. According to the California Association of Port Authorities, there appears to be some progress with a pending tariff that will be charged to container ships left too long on port property. This action took place in the Port of Los Angeles and the Port of Long Beach. The “Container Excess Dwell Fee” is designed to clear docks needed to unload the large backup of ships outside the twin ports. “When the new fees — which are to be in effect for 90 days as of Nov. 1 — were announced, there were 91,300 containers in the LA port. Nearly 39,000 of those — or about 40% — had sat there for nine days or more,” Port of LA Executive Director Gene Seroka said. Earlier this month a California legislative committee met for five hours in a hearing called by Assemblymember Patrick O’Donnell, D-San Pedro, and state Senator Lena Gonzalez, D-Long Beach that featured panelists from the port industry, government, business, and workforce. It’s unclear what concrete action could result from the hearing. The Assembly and Senate Select Committees on Ports and Goods Movement hearing was conducted to gather testimony from the various sectors. “We’re holding this hearing to hear straight from the source where the bottlenecks are occurring and to evaluate both short and long-term solutions,” Assemblyman O’Donnell said. “Based on my conversations, this is a multi-faceted problem and will require multi-faceted action.” Here are the suggestions: > Bringing in sweeper ships to help clear the region of thousands of empty containers. > Making better use of the Port of Oakland, where there is currently room for more ships. > Appointing an overseer or “point person” to rein in the chaos of a supply chain that has multiple links, all operating separately. > Finding more land — for warehouses, for container storage, and for developing inland and smaller water ports to ease the burden on the Ports of Los Angeles and Long Beach, where 40% of the nation’s imports arrive. > Building and producing more chassis in the US; most currently come from China, with some from Mexico. So where does that leave us, Santa Cruz County businesses, and consumers waiting for the holiday season rush? It is anyone’s guess whether the logjam at our ports will be cleared before the end of the year. My guess is to be prepared for delays in receiving online packages and of course, the retail shops may have limited products on shelves and display cases.
According to Mark Schniepp of the California Economic Forecast, “The GDP outcome for the July to September 2021 quarter was disappointing. And with year-to-date inflation running at 5.3 percent—the highest rate of inflation in 13 years—there are mounting concerns that the US economy may be heading into a stagflationary period of the business cycle.”
Economic experts start to worry when inflation and a sluggish economic outlook can turn into “Stagflation,” something we haven’t seen since the 1970s in the US. Driving our consumption patterns is now a supply chain logjam at our ports. The post-pandemic supply bottlenecks represent a current shock because they have largely been unanticipated. So-called “shortages” are occurring where we can’t sell enough automobiles, pet food, or beef to consumers who want this stuff, reducing some production and output value. Meanwhile, the demand for labor remains extraordinary, the unemployment rate continues to decline, and general consumer demand for products does not appear to be leveling off as we head into the holiday spending season.
The producer price inflation has now hit 20 percent year-over-year. This is the highest rate of inflation in producer (or wholesale) prices since 1974. To put this into perspective take a look at the Bureau of Labor Statistics latest news: https://www.bls.gov/news.release/pdf/ppi.pdf. The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.
As noted in earlier reports, the economy appeared to be in horrible condition in the spring of 2020; however, both the administration and Congress responded by passing a $3 trillion spending program to restore income to businesses, organizations, and workers lost from a shutdown economy. This was just the beginning of a massive fiscal policy response to the pandemic.
In May and June of 2020, the economy bounced back. Conditions were not as bad as presumed and incomes remained surprisingly resilient, helped by the CARES Act, despite the unemployment numbers hitting record highs. Consumers then went on a buying binge and this is the fundamental impetus for the current supply chain block. I will get to that later.
In December 2020, another $900 billion stimulus program was initiated. This included more money and PPP loan funding to keep businesses above water. Then another $1.9 trillion of spending was approved in March 2021. The US response to the pandemic has been an order of magnitude larger than the response to the 2008 global financial crisis.
Last Friday, the House of Representatives passed a more than $1 trillion bipartisan infrastructure bill, sending it to President Biden, who gleefully stated he felt confident that Congress will also pass his second spending bill entitled, “Build Back Better.”
The House plans to take the next step in passing the social spending and climate change plan. According to sources close to House Speaker Nancy Pelosi, they will try to approve the bill during the week of Nov. 15 once House members return from a weeklong recess. The infrastructure bill passed only after House progressives and centrists made a non-binding pact to approve the social spending plan this month. Five centrist Democrats said they would vote for the larger bill if a coming Congressional Budget Office cost estimate projects it will not add to long-term budget deficits.
Some economists suggest that the infrastructure bill and the Build Back Better bill will generate excessive spending levels within the economy at a time in which the recovery would be better left alone. More massive government spending will likely exacerbate inflation by further stimulating already steady demand for goods and services, they predict. I am not sure that argument holds weight with the Biden Administration, Congress, and the American people when there is an unprecedented need to improve our infrastructure — housing, roads, bridges, highways, broadband connectivity, rail systems and airports, and water projects. However, the debate is still open as to what will be in the final Build Back Better spending package.
Now back to the logjam at our ports. According to the California Association of Port Authorities, there appears to be some progress with a pending tariff that will be charged to container ships left too long on port property. This action took place in the Port of Los Angeles and the Port of Long Beach. The “Container Excess Dwell Fee” is designed to clear docks needed to unload the large backup of ships outside the twin ports. “When the new fees — which are to be in effect for 90 days as of Nov. 1 — were announced, there were 91,300 containers in the LA port. Nearly 39,000 of those — or about 40% — had sat there for nine days or more,” Port of LA Executive Director Gene Seroka said.
Earlier this month a California legislative committee met for five hours in a hearing called by Assemblymember Patrick O’Donnell, D-San Pedro, and state Senator Lena Gonzalez, D-Long Beach that featured panelists from the port industry, government, business, and workforce. It’s unclear what concrete action could result from the hearing. The Assembly and Senate Select Committees on Ports and Goods Movement hearing was conducted to gather testimony from the various sectors. “We’re holding this hearing to hear straight from the source where the bottlenecks are occurring and to evaluate both short and long-term solutions,” Assemblyman O’Donnell said. “Based on my conversations, this is a multi-faceted problem and will require multi-faceted action.”
Here are the suggestions:
> Bringing in sweeper ships to help clear the region of thousands of empty containers. > Making better use of the Port of Oakland, where there is currently room for more ships. > Appointing an overseer or “point person” to rein in the chaos of a supply chain that has multiple links, all operating separately. > Finding more land — for warehouses, for container storage, and for developing inland and smaller water ports to ease the burden on the Ports of Los Angeles and Long Beach, where 40% of the nation’s imports arrive. > Building and producing more chassis in the US; most currently come from China, with some from Mexico.
So where does that leave us, Santa Cruz County businesses, and consumers waiting for the holiday season rush? It is anyone’s guess whether the logjam at our ports will be cleared before the end of the year. My guess is to be prepared for delays in receiving online packages and of course, the retail shops may have limited products on shelves and display cases.