This Week’s Economic Update, July 12, 2021

Share Post:

Share on facebook
Share on linkedin
Share on twitter
Share on pinterest
Share on email

The Baseball All Star game was always a highlight of my summer growing up.  It was the only time you could see the American League take on the National League players outside of the World Series.  While there was nothing but prestige on the line, the players took it personally in the 60’s and 70’s.  Bragging rights for the year on which league was best were at stake.  The best pitchers, hitters and fielders were on display.  The performance of your favorite All Stars was talked about for days afterward.  Pete Rose sliding into Ray Fosse, Reggie Jackson pounding a homer out of the old Tiger Stadium, Harmon Killebrew pulling a hamstring while stretching to catch a throw at first base and watching Doc Ellis pitch against Vida Blue in a duel for the ages, all stand out because the elite at the time left it all on the field.  It really was a time where we were polarized in a different way, not Red or Blue, but American or National and that was settled annually in July on the field.

Recent traffic patterns clearly indicate that we are in a post pandemic era.  The sheer volume of cars and trucks on the roads has increased dramatically since early May.  The anticipation is that by Labor Day, if you are going back to the office, you will be there.  The increase in traffic is highlighting another supply chain deficiency, rubber.

Ninety percent of our rubber world wide is sourced in Southeast Asia.  Rubber plantations are a misnomer.  The majority of rubber is produced by “Smallholders”.  Small family farms of rubber trees that cover less than 30 acres each.  The trees are planted close together to make the most of production.  Typically it takes 4 -7 years for a rubber tree to mature. 

Rubber is used in over 40,000 different commercial and consumer products from tires, underwear, gloves, all the way to rubber bands.  The rubber industry is under attack on a number of fronts.  The close compaction of trees has led to spreading disease, a fungus that is rapidly impacting the trees.  The lack of genetic diversity has left the crop exposed without a defense.  Recent weather changes, stronger storms, floods and higher temps have left a mark on the crop also.  COVID has shut down the farms and other processes to produce the product as it comes out of the trees.  Between these areas decreasing the production as well as the higher demand for not just tires but personal protective gear, the supply of rubber is reaching a critically low point.  If you need tires, this might be a good time to buy.  Keep an eye on the rubber market if your firm or your clients are linked in anyway.

The economy might be showing early signs of the slow-down I suggested that may occur in the fourth quarter.  The ISM non-manufacturing report released on July 6 reflected a slowing of the growth from May.  The comments in the report appear to lay most of the blame for the reduction in growth as supply chain issues.  Many of the restaurant’s report being strapped for specific ingredients, chicken in particular.  The other constraint item is qualified workers leaving shifts un-manned.  In some cases this shuts down operations or delays the clients in receiving the services they need.  Until the immediate stimulus to unemployed workers is exhausted, it is not likely the labor shortage will abate. 

The report also indicated that consumers are retracting from spending on non-essential items.  This is an indication that the stimulus funds for those working have run out, consumers may be returning to a more normal sense of spending. 

Lastly, specific commodity prices are dropping.  Lumber is down 40% from its high earlier this year.  Corn, beans and wheat are dropping in price also.  The crop reports, in spite of the drought in the upper regions, appears to be very good.  There are fewer shortages showing up on the grocery shelves both in terms of vegetable and meat offerings.  The only areas that are critical in terms of supply shortages and price inflation appear to be import items related to hard hit regions that are still struggling with the Covid pandemic.

INSIGHTS

Weekly insights that impact risk.

Stay on top of risk management trends and forecasts.

We keep your data private and do not share your data with third parties. Privacy Policy