360°-View Helps Track Progress in Snarled Supply Chain

After years of anxiously watching for inflation, it’s here. Unfortunately, what many expected to be a short, COVID-19-induced visit has turned into an extended stay, thanks to robust demand and a snarled supply chain. The question now is does the supply chain pose a threat to our economic outlook?

Government data broadcasts the heartbeat of the US economy, but it can lag real-time economic conditions by weeks or even months. That makes it less than ideal for predicting real-time disruptions. To quickly and accurately chart inflation’s unpredictable path, we developed a dashboard that provides a 360°-view by including traditional indicators, high-frequency data, big data and views from our global research team.

Supply Chain to Blame for Skyrocketing Goods Prices

For 10 years, the goods and services components of inflation have run separate courses (Display). While the services component of inflation held steady around 2.5% over the last decade, goods prices were disinflationary. Then, in mid-2020, goods inflation skyrocketed into double digits due to a combination of pent-up demand and supply-chain disruptions. A surge of this magnitude is unprecedented in modern economic history and is pulling headline and core inflation up significantly.

What’s the key to driving down inflation? Fixing the supply chain. Some blame labor shortages as workers appear less interested in their previous jobs after the pandemic shutdowns. Yet, monthly employment reports average 500,000 jobs added, sometimes with upward revisions to prior months. And at the current pace, the economy is on track to be back at pre-COVID-19 employment levels by mid-2022.

So, while supply-chain difficulties include labor shortages, that’s not the whole story. The best measure of supply-chain disruptions using monthly data is the Institute for Supply Management’s Backlog of Orders. This gauge peaked in June but remains well above normal due to widespread reports of challenges sourcing parts and materials, rising commodity prices, and transportation struggles, on top of difficulty attracting and retaining employees.