Newell Brands, which makes a range of well-known consumer products from Rubbermaid containers to Elmer’s glue, expects a ``significantly more favorable cost inflation environment,’’ said CFO Chris Peterson. ``We expect supply chain pressures to ease as there is greater availability of ocean containers, freight carriers and raw materials,’’ he said, adding that a weaker Chinese yuan also helps.
Mohawk Industries Inc. shows how the improving supply chain and softer demand translate into lower inflation. The maker of carpets, ceramic tiles and countertops only partially offset raw materials costs with a second-quarter price increase on carpets. Mohawk tried and failed to push prices up further as housing demand slowed. Raw materials have since trended down and carpet prices will align with costs once higher-cost inventory is depleted, said Chief Operating Officer Christopher Wellborn.
The housing downturn will allow PulteGroup Inc. to catch up on construction and reduce the time it takes to build a home, which has doubled to six months from about 90 days in normal times.
``I am very focused with our production teams to claw back cycle time in 2023,’’ said CEO Ryan Marshall. ``I'm confident based on the drop in volume, but also just the healing of the supply chain, which continues to get better and better, that can become a reality in 2023 and beyond.’’
Housing prices will have room to drop as the cost of steel, lumber and other materials declines and as homebuilders can boost efficiency by cutting construction times.
Not everyone is seeing light at the end of the tunnel though, especially where skilled labor is involved.
Boeing would be able to produce more aircraft if General Electric Co. and its partner Safran SA could produce more jet engines, said CEO David Calhoun. Brunswick Corp., which makes recreation boat motors, was forced to slow production when almost 2,500 outboard engines were held up awaiting a single delayed part. The company is managing through ``some discrete but impactful shortages, most recently due primarily to continued labor shortages at some of our U.S. supplier facilities,’’ said CEO David Foulkes.
Some of these labor issues will work themselves out, especially as the economy cools with rising interest rates. Labor force participation should rebound from 62.3% now to the pre-pandemic 20-year average of nearly 65%. People can’t hang out in their parents’ basement or friends’ couches doing nothing forever.
But the shortage of skilled workers was acute even before the pandemic. Washington’s knee-jerk solution would be to throw money at the problem. That’s not prudent during inflationary times. Besides, there’s plenty of funds sloshing around our school systems, it’s a matter of focusing those dollars on programs that teach students how to weld, plumb a house, operate CNC machines and 3D printers, and fix them. Local industry could donate the machinery and help orient the curriculum toward real-world job training.
Demographics show that improving our home-grown workforce won’t be enough. The birth rate – or number of live births per 1,000 residents – at 11 in 2021 is less than half the levels of the 1960s. The need of the hour is for politicians on both sides of the aisle to step back from the ledge of their parties’ extremes and cut a deal on immigration that allows for an orderly, legal inflow of workers.
Supply chains will correct themselves by next year. The big question is whether the US embraces the opportunity to rebuild a supplier manufacturing base that was decimated over decades of free-trade evangelism. New factories will need to be highly automated and efficient. They’ll also need a trained workforce or else other countries will fill the breach.
Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, he covered U.S. industrial and transportation companies and Mexico's industry, economy and government.