This Week’s Economic Update, March 26, 2021

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A running joke in the 1970’s was Naturalist Euell Gibbons commercial for Grape Nuts where he asked, “Ever eat a pine tree?  Many parts are edible.” Grape Nuts were always seen as a cereal for the older crowd, if you wanted to make noise when eating, Cap’n Crunch was our go to breakfast choice.  The attraction to Grape Nuts was its ability to keep one regular.  To me, there was not enough sugar to offset what felt like chewing on small pebbles.

Post Grape Nuts are still on the shelf, but in limited quantity.  Post Cereal produces this cash cow locally in Minnesota at only one location.  When the pandemic first struck a year ago, leaving many workers to remain home, sales of cereal skyrocketed.  People nationwide rediscovered breakfast.  Initially Post focused on meeting the demand for more popular lines like Post Toasties, the Flintstone line and others.  Production of Grape Nuts was held to allow for greater capacity on other cereals.  This created a nationwide shortage for those that are “Nuts For Grape Nuts”.  Late in 2020, boxes of Grape Nuts were impossible to find.  Buyers were willing to pay over $110.00 per box for the crunchy wheat and barley mix.  Add transportation issues and other supply chain problems and the shortage continued in spite of growing social media attention to the plight of those deprived of their preferred laxative. 

Post Cereals has now corrected the issue and is producing Grape Nuts at a break neck speed.  They have also offered a rebate to buyers who suffered price gouging over the past year.  If you can produce a store receipt showing an inflated price for purchasing Grape Nuts, the company will send you cash to cover the loss.  The offer is good until April 15.  As the shortage hit, I was quite worried about my pine trees surviving.

As if our supply chains are not stressed enough, a gale force wind knocked a cargo ship side ways in the Suez Canal.  The Ever Given is sideways in the channel blocking all ship traffic moving between the Mediterranean Sea and the Indian Ocean.  Typically, 50 ships per day move products from all over the world through the canal.  The alternative path is around the Cape of Good Hope, South Africa, a two week plus trip.  The re-route is also much more expensive.  The stranded ship may take some time to fully dislodge, they moved the stern 100 yards overnight.  The Ever Given is carrying over 20,000 containers.  Multiply that by all the ships waiting to get through and you can see the supply chain disruption.  At a back-up of 50 ships per day, this is a backlog that will not be cured for an extended time, even if the Ever Given is freed this week.  For now, the primary impacts are goods going to or from Europe and Asia.  Eventually this will slosh over to impact our trade as production of goods in Europe and Asia that will be sent to the US will be delayed.  Worse case?  The ship is stuck at the bow and the stern without support in the middle.  Ships are not built to withstand that type of stress.  If it were to sag or break in the middle, removal of the ship and its contents could take months.

We have to place a marker at February 2021 in terms of economic activity.  This was a month which will have an asterisk next to it due to the record cold as well as having had the book ends of the stimulus programs surround it. Everything from the Durable Goods orders, housing starts, housing sales and production were impacted by what have to be extenuating circumstances.  With an increase in consumer spending due to the early stimulus checks, the rapid opening of many States economies, January numbers soared making it difficult for February to exceed.  The cold weather further complicated things in February as people stayed away from doing virtually anything.  With great weather in March, coupled with another round of stimulus, the economy is being supercharged in many areas.    

The March numbers will be good, but the cloud behind the silver lining should be noted.  Interest rates are rising which is putting a cap on the housing market.  Supply chain issues are limiting consumer spending and delaying many construction projects.  The chip shortage is curtailing production in many industries.  On top of this, employers continue to struggle to find trained, qualified workers in the manufacturing arena.  There are no easy fixes to the above issues.  They will all linger through 2021 producing shortages, higher inflation and higher interest rates.

The bright side?  Grape Nuts are in ample supply.

Have a great week.

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