Supply Chain Hurdles Will Outlast Pandemic, White House Says​​​

The coronavirus pandemic and its ripple effects have snarled supply chains around the world, contributing to shipping backlogs, product shortages and the fastest inflation in decades. But in a report released today, White House economists argue that while the pandemic exposed vulnerabilities in the supply chain, it didn’t create them — and they warned that the problems won’t go away when the pandemic ends, the New York Times reported. “Though modern supply chains have driven down consumer prices for many goods, they can also easily break,” the Council of Economic Advisers wrote. Climate change, and the increasing frequency of natural disasters that comes with it, will make future disruptions inevitable, the group said. White House economists analyzed the supply chain as part of the Economic Report of the President. The annual document, which this year runs more than 400 pages, typically offers few new policy proposals, but outlines the administration’s thinking on key economic issues facing the country, and on how the president hopes to address them. This year’s report focuses on the role of government in the economy, and calls for the government to do more to combat slowing productivity growth, declining labor force participation, rising inequality and other trends that long predated the pandemic. “The U.S. is among and remains one of the strongest economies in the world, but if we look at trends over the last several decades, some of those trends threaten to undermine that standing,” Cecilia Rouse, chair of the Council of Economic Advisers, said in an interview. The report dedicates one of its seven chapters to supply chains, noting that the once-esoteric subject “entered dinner-table conversations” in 2021. In recent decades, according to the report, U.S. manufacturers have increasingly relied on parts produced in low-cost countries, especially China — a practice known as offshoring. At the same time, companies have adopted just-in-time production strategies that minimize the parts and materials they keep in inventory, in an attempt to maximize returns to shareholders.

In related news, inventory levels have gone up for many companies in recent months as U.S. port congestion has eased and supply chains have begun to untangle, Reuters reported. Wholesale inventories surged 19.9% in February on a year-on-year basis, according to figures released today by the Commerce Department. They were up 2.5% from January. Most economists predict that inventories could continue their upswing, since inflation-adjusted inventories remain below their pre-pandemic levels. Inventory-to-sales ratios are also low. The challenge now is the latest shutdown in China, which is clogging highways and ports and stranding workers inside factories or shutting down production. These disruptions are sending a new ripple through global supply chains for goods ranging from electric cars to iPhones.

High Gasoline Prices Take Up Big Share of March Retail Spending Increase​​​

U.S. retail sales rose in March for the third straight month as consumers confronted the highest inflation in four decades and absorbed record-high gasoline prices, the Wall Street Journal reported. Retail and restaurant spending rose by 0.5% in March compared with the previous month, the Commerce Department said Thursday, down from the revised monthly increase of 0.8% in February. Gasoline sales jumped 8.9% in March over the previous month after Russia’s invasion of Ukraine triggered higher oil and gasoline prices. Excluding gasoline sales, retail sales fell by 0.3%. Declines in online shopping and auto sales also held back spending totals. Overall retail sales would have been even higher if not for a 1.9% monthly auto sales decline. Auto companies struggled with a vehicle shortage during the pandemic due to supply disruptions, pushing prices up sharply. Sales also declined at online retailers, a 6.4% drop over February. Spending rose for a range of other categories, including appliances, electronics, groceries, dining out and clothing. But gains only outpaced inflation in three categories: sporting goods, electronics and general merchandise, according to Tim Quinlan, senior economist at Wells Fargo. Retail sales aren’t adjusted for inflation; on an adjusted basis, retail sales fell by 0.7% last month, according to the Federal Reserve Bank of St. Louis and economist estimates. Annual consumer inflation surged to a new four-decade high of 8.5% in March from the same month a year ago, the Labor Department said Tuesday. (Subscription required.)

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Biden Student Loan Pause Could Give 7 Million Borrowers a Higher Credit Score​​​

President Biden didn’t forgive any student loan debt when he extended a pandemic pause on payments through Aug. 31, but he did forgive the debtors, the Wall Street Journal reported. The more than 7 million borrowers with defaulted federal loans will get the default removed from their credit reports and be given a second chance to get back on track making payments, the Education Department said. The change will improve the financial prospects of these borrowers, as a default significantly hurts people’s chances of getting auto loans, mortgages and credit cards. It may also limit one’s ability to get a job, rent an apartment or enlist in the U.S. Armed Forces. People go into default after 270-360 days if they fail to make required payments on the federal loans, don’t receive a deferment or forbearance, or don’t obtain an income-driven repayment plan. A default can cause a 100- to 200-point drop in your credit score, said Mark Kantrowitz, an author and entrepreneur who has built several businesses around explaining financial aid and student debt. Borrowers with a default often end up in the subprime range, he said. “Having the default cleared gives borrowers the opportunity for a clean slate,” Kantrowitz said. This reprieve will raise the credit scores of defaulted borrowers when the plan takes effect, probably within 30 days of the Education Department reporting the change to the major credit bureaus such as Experian PLC, Equifax Inc. and TransUnion, Kantrowitz said. How much people’s credit scores will rise depends largely on their individual circumstances. (Subscription required.)

Weekly U.S. Jobless Claims Increase, but Remain Near Half-Century Low​​​

The number of people seeking unemployment benefits ticked up last week but remained at a historically low level, reflecting a robust U.S. labor market with near record-high job openings and few layoffs, the Associated Press reported. Jobless claims rose by 18,000 to 185,000, the Labor Department said Thursday, after nearly touching the lowest level since 1968 in the previous week. The four-week average of claims, which levels out week-to-week ups and downs, edged up from 170,000 to 172,000. Two years after the coronavirus pandemic sent the economy into a brief but devastating recession, American workers are enjoying extraordinary job security. Weekly applications for unemployment aid, a proxy for layoffs, have remained consistently below the pre-pandemic level of 225,000. Last year, employers added a record 6.7 million jobs, and they’ve added an average of 560,000 more each month so far in 2022. The unemployment rate, which soared to 14.7% in April 2020 in the depths of the COVID-19 recession, is now just 3.6%, barely above the lowest point in 50 years. And there is a record proportion of 1.7 job openings for every unemployed American.

Record High Office Lease Expirations Pose New Threat to Landlords and Banks​​​

A record amount of U.S. office space is hitting the market this year due to a jump in lease expirations, putting property owners in a bind and threatening to leave banks and other lenders stuck with more troubled loans, WSJ Pro Bankruptcy reported. Most office building owners have been able to ride out the pandemic because corporate tenants have been locked into long-term leases. They had to continue paying rent, even though their employees stayed home. Now as more leases expire, a growing number of tenants are shrinking their offices because they need less space under hybrid strategies that blend office space with remote work, brokers say. Leases for 243 million square feet of U.S. office space are set to expire in 2022, the most office space to hit the market in a single year since real-estate services firm JLL began tracking this data in 2015. The expiring leases represent about 11% of the nation’s overall leased office space. The rise in office space hitting the market this year is a direct result of the pandemic. Many office tenants whose leases expired last year or in 2020 negotiated extensions of only a year or two, rather than renewing at the typical length of 10 years or longer, as these firms tried to determine how much less space they might need under a hybrid approach. The looming lease expirations represent a 40% increase since 2018 and pose a new threat for office landlords already frustrated by stubbornly slow return-to-office rates and a national vacancy level of 12.2%. That rate is a high for the pandemic period and is up from 9.6% at the end of 2019, according to real estate data firm CoStar Group Inc.

U.S. Consumer Sentiment Brightened in Early April, Survey Shows​​​

U.S. consumer sentiment rebounded unexpectedly in early April from a decade low, with the strong job market lifting the outlook for wage growth and a fall in gasoline prices from the previous month's record high helping to cap expectations for a further acceleration in inflation, a survey showed today, Reuters reported. The University of Michigan's Consumer Sentiment Index rose to 65.7 on a preliminary basis this month from a final reading of 59.4 in March, which had been the lowest since 2011. That topped expectations for a reading of 59, according to a Reuters poll of economists, and helped snap a skid of three consecutive monthly declines. The increase came almost entirely from a jump in the expectations index to 64.1 on a preliminary basis from a March final level of 54.3. Assessments of current conditions were little changed. Consumers' estimates for the rate of inflation over the next year were unchanged at 5.4%, which is the highest since 1981 and signals that consumers have some faith that measured inflation will recede from a four-decade high of 8.5%, which hit in March. Also, for a third straight month, they estimated inflation over the next five years at 3.0%.

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