Last year, the world became intimately acquainted with the idea and practice of hoarding toilet paper. Grocery shelves were suddenly cleared as people rushed to build up their supplies of the white stuff.
Now, Bank of America economist Ethan Harris affirms that clogging up of global supply chains could ease over time as specific shocks fade. Still, the fundamental problem is one of strong demand and low inventory. (…) Even worse, faced with shortages, companies are starting to double order to ensure that they are high in the queue. This fact is the business sector equivalent of emptying the grocery store in front of a hurricane or hoarding gas or toilet paper at the first hint of shortage.
Goldman Sachs led by Nicholas Snowdon, also pointed out that China is no longer the marginal buyer dictating price — as has been the case over much of the past two decades — but [is] now being crowded out by Western consumers.
And while the Goldman analysts certainly didn’t mention toilet paper in their note, the thought process is similar. Demand has far outstripped supply thanks to a mismatch between the ordering needs of paranoid consumers and the ability of suppliers to ramp up production.
So what does the new strategy of demand-led hoarding mean for the economy? As the Bank of America economists point out, it means we should be identifying the impact of supply-side shortages on economic data rather than assuming that activity is purely a function of demand.
That’s something to keep in mind when nonfarm payrolls for May are released this Friday.