94.7% FORECAST ACCURACY || BUSINESS-MINDED ECONOMISTS || UNBIASED AND APOLITICAL
This article is provided by ITR Economics in partnership with Sheet Metal & Roofing.
Annual US Total Retail Sales (deflated) are rising at the fastest pace in the 74-year data history, up 13.9% from 2020. Strong consumer trends – including a low debt-to-income ratio, elevated savings to tap, and low unemployment – are contributing to record-high Retail Sales. Despite rising US Consumer Prices (up 7.5% over the last 12 months), consumers have thus far been willing and able to swallow increased costs. With record-high Retail Sales comes the inevitable need for expanded capacity, both for the production and transportation of goods. Some snags, however, are impacting the movement of goods, and we expect such problems will persist in the coming quarters.
The unprecedented labor shortage is a significant impediment to our ability to move goods around the country. Annual average US Total Transportation, Warehouse, and Utilities Job Openings are 50% above the pre-pandemic record high. In contrast, US Total Nonfarm Job Openings are up 34%.
For the trucking industry, labor shortages are nothing new. For years, transport services have struggled to fill job openings and expand capacity to meet rising demand. There are several factors at play:
While employers have used every tool at their disposal to attract new drivers – including higher wages, better benefits, and bonuses – the shortage has held.
Without sufficient truck drivers, supply chains suffer. This was made especially clear in recent weeks as Canadian truck drivers gathered in Ottawa to protest COVID-19 health and safety mandates. The protests not only hindered supply chains due to the reduced workforce, but also disrupted cross-border trade via the Ambassador Bridge between Windsor, Ontario and Detroit, Michigan. This border crossing accounts for hundreds of millions of dollars per day in economic activity, or about 25% of all trade between the US and Canada. The disruption to the supply chain also hurt the already beleaguered auto industry, further hindering the delivery of crucial production components to the extent that many production plants have experienced delays or had to pause operations. The bridge was cleared late on February 13, allowing affected auto manufacturers to restart production, but it may take several days for operations to return to normal.
The warehousing industry is suffering from a similar affliction. Though employers, as in the trucking industry, are boosting wages, adding benefits, and offering bonuses, many in the labor force are deterred by the demanding physical work and unappealing hours in an industry that operates 24/7. These factors, combined with a hot labor market, are reducing the number of applicants for warehouse jobs relative to recent years. In addition to the lack of applicants, warehouse employment has a significantly higher turnover rate than employment in most other industries. Amazon warehouses, for example, have an annual turnover rate of roughly 150%. This also makes it more difficult to maintain a well-trained workforce – constant turnover requires constant training and time devoted to onboarding. In many cases, warehouses are not operating at full capacity even when positions are technically “filled.”
With these challenges in mind, it is important to consider capitalizing on the expected slowing growth trend that we expect for the US industrial and consumer sectors this year. Use this period of cooling activity to focus on hiring, training, and retaining your workforce. This will be crucial step to take ahead of the return to accelerating growth expected for the US macroeconomy during the second half of 2023.