shortage in 2021, particularly in the automotive industry. The shortage of semiconductors contributed to a stunning 26.4% increase in used car prices and 9.4% increase for new cars. According to the Semiconductor Industry Association, the U.S. share of global semiconductor manufacturing capacity has declined from 37% in 1990 to just 12% today. The drop in U.S. global semiconductor manufacturing capacity exacerbates COVID related sourcing problems. In the United States, the ramp-up in consumer demand for imported goods as the economy expanded, combined with infrastructure problems at ports and railways, and labor shortages, contributed to supply chain problems. Imports of sporting goods, particularly bikes, and furniture are heavily relied on by U.S. consumers. Imports were impacted by COVID related supply chain issues not only in the U.S. but also in the foreign sourced country. Sporting goods prices (including bikes) increased 8.4% and furniture and bedding prices rose 12.6% for the 12-month period ended October 2021. A myriad of factors contributed to a rise in food prices. Rising energy prices affect transportation and feed costs. COVID has created labor shortages which in turn affect product availability and supply chain issues. Unfavorable weather has also been a factor. For the 12-month period ended October 2021, food prices increased 5.3%, with meats, poultry, and fish up 11.9%. Pent-Up Demand Pent-up demand for travel and a COVID decline contributed to soaring prices in 2021 for lodging away from home, which saw a price increase of 22.8%, and car and truck rental prices, which increased 39.1%. Car and truck rental prices were also impacted by the semiconductor shortage, which impacted the prices and availability of new and used cars. Although the demand and supply imbalances created by COVID that led to inflation are expected to subside, there will likely be some lasting effects. Inflation created by COVID magnified other problems, such as supply chain issues and offshore sourcing, infrastructure problems, labor market issues, global energy reliance on oil and natural gas, and in some cases, inventory management. Each of these areas has problems that although exacerbated by COVID, are not because of COVID. Changes will likely be made. Conclusion What a ride. Since early 2020, the COVID driven economy created unprecedented ups and downs in economic growth, employment, job openings, the quit rate, workers leaving the workforce, and inflation. Supply chain issues, including infrastructure problems and offshore sourcing, were not created by COVID, but the economic impacts of COVID magnified supply chain problems. Economic volatility began in 2020 with the dramatic, sudden negative economic impacts of COVID. Economic volatility continued as multiple fiscal and monetary responses reversed the negative economic effects of COVID, but new problems such as inflation and supply chain issues appeared in 2021. The uniqueness of the pandemic and unprecedented fiscal and monetary responses combined to create new challenges for businesses and policymakers. As the U.S. and world get ready for 2022, the effects of COVID on the global economy continue. The greater the prevalence of COVID in 2022, the greater the negative economic effects. The impact of COVID was and remains global; countries are connected economically. Hopefully in 2022, the unprecedented economic volatility and negative effects caused by the virus dissipate. Supply chain issues should improve as the impact of COVID on global economies is reduced and infrastructure is improved. Demand and supply should become balanced as economic growth stabilizes and supply irregularities resolved, leading to reduced inflation and stabilization in the labor market. Some of the economic impacts of COVID will likely remain. Businesses may rethink supply chains and offshore sourcing. Infrastructure problems need to be resolved. Given the steep rise in energy prices, energy sourcing may be reconsidered. The labor market has changed, and increased flexibility and employment options for workers will likely remain in a growing economy. COVID created unprecedented economic challenges; meeting the challenges will allow the U.S. to emerge as a stronger global economic leader.
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Center for Business and Economic Insight
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