Looking Ahead

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ECONOMIST CHRIS KUEHL RECENTLY PRESENTED HIS OUTLOOK ON THE 2022 ECONOMY

BY CADENCE JOAN • C.P. ADHESIVES GROUP

At the beginning of the fourth quarter in 2021, AWFS Executive Vice President Angelo Gangone hosted a webinar featuring Economist Chris Kuehl. In this presentation named, “2022 Economy— Old Issues Hang on While New Ones Emerge,” Kuehl opened by stating, “If you look at the last couple of years, they’re going to be anomalies forever ... everything we thought we knew in 2020, we didn’t know at all.” So, just how does a country respond after two consecutive anomaly years? According to Kuehl, carefully and tactfully.

Before the presentation’s start, the webinar’s live attendees were asked, “What current economic challenges are impacting your

CHRIS KUEHL. PHOTO COURTESY OF AWFS WEBINAR PRESENTATION VISUALS

company now?” and were prompted to select all the options that applied to them. The options listed were as follows: • Workforce Shortage • Supply Chain Disruption • Increased Demand • (Other) please describe in chat

It was no surprise that 92% of attendees indicated “Supply Chain Disruption” as the issue impacting the manufacturing industry, but what surprised the AWFS host was the 62% of participants who also indicated “Increased Demand” as a challenge. It is important to note that 62% of participants also selected “Workforce Shortage” as a current challenge impacting their company. With the data presented, it’s easy to see how meeting the demand would be a challenge for many companies due to the lack of supplies and skilled workers. Some of the other challenges mentioned were COVID-19 outbreaks, raw material costs, freight costs, and logistics challenges.

Obviously, high demand has caught everyone off guard. Kuehl explained that the supply chain crisis is primarily due to the overwhelming demand we are seeing industry-wide. “In the second quarter of this year, we were growing at around 9.5%. We never grow that fast. And even when we ratcheted it down by the end of the second quarter, it was still 6.5% which is ridiculously fast for a country this large.” While he noted that it has since slowed, he reassured us that it is not a catastrophic change. This still leaves us wondering, though, what does this mean for the industry and economy as we look forward to 2022?

Unfortunately, the answer is not straightforward and largely depends on how we respond in our day-to-day business activities.

The first look ahead is at the state of the workforce shortage. Interestingly, the narrative we’re hearing through the media isn’t quite an accurate depiction, according to Kuehl. “One of the challenges has been the whole conversation about people in the workforce … there’s this narrative that people don’t want to work anymore,” he said. “The fact of the matter is we’ve been dealing with this as a problem for years ... one of the key issues that people keep forgetting is that the boomers are retiring … 10,000 boomers retire, or reach retirement age every single day. We have been losing 3.5 to 3.7 million workers per year for the last four to five years.” Looking ahead to 2022 doesn’t change the state of this shortage. Without a pipeline of new and skilled talent coming into the manufacturing workforce, the industry’s current hiring habits may lead to wage inflation problems. “If you’re going to recruit somebody by poaching them with money, you’re going to have to pay them more and give them more benefits,” he cautioned. Once wages increase, they do not decrease, which becomes an irreversible consequence.

While Kuehl estimates unemployment numbers maintaining their levels at around 4.5% to 5%, he mentions that certain parttime workers and workers seeking employment aren’t always accurately depicted in the data. He reiterates that the state of skilled trade workers isn’t going to turn around quickly, and it’s going to take a lot of teamwork between the manufacturing industry and the education systems to rebuild a workforce pipeline before we see any improvements.

The workforce shortage is not only impacting businesses’ ability to keep up with demand, but it’s also impacting businesses’ ability to obtain key supplies. There aren’t enough workers driving trucks, working the docks, or working on container ships. Unfortunately, global conflicts surrounding raw materials, energy sources, and even weather patterns are heavily impacted by supply chain issues. Many companies are doing what they can to meet the high demands, but many factors are simply out of our control. One example of this is rising gas prices. Kuehl explains how Russia is holding on to gas to try and pressure Europe into building a pipeline, while Europe has invested heavily into wind power, trying to replace their need for gas. Unfortunately, they cannot produce the power they need because the weather hasn’t cooperated with their efforts. The solutions to these problems aren’t as simple as waiting, conserving, or even resourcing. These are global issues and complex ones at that.

Kuehl did, however, ease our minds with regard to inflation. While some economists tend to over predict inflation, hyperinflation, and stagflation, Kuehl reminds us that our numbers are nowhere near critical levels, and the facts just do not support those concerns. Our economy is growing, and it’s growing fast. Even as we begin to slow down, we’re reminded, “it’s not to a critical point by any stretch.” While there are certain concerns to consider when looking ahead, such as money supply and circulation, we’re reassured that the negative impacts of inflation such as high-interest rates and rising supply costs are relatively temporary, projected to ease in Q2 or Q3 of 2022. “You’ve got to suffer through six or seven months before it gets any better.” In his projections, he stated, “Inflation at the core rate is going to be around 3%, the real rate is probably around 5% ... some sectors are seeing it more aggressively than others.”

He explains that interest rates will start to rise by the middle of 2022 and will likely go up around 1% to 1.5% by the end of the year.

In addition to interest rates, Kuehl projects increases in mortgage rates, an important consideration to the wood manufacturing industry. With low mortgage rates being the only thing holding up the housing industry, it’s going to impact buyers. While the housing market has been growing at 26% yearly, there may be a bit of a slow down when mortgage rates increase.

The commercial building side is beginning to rebound from its recent 44% dip. Warehousing distribution is driving the commercial building side as the office environment is not yet recovering from the movement of employees to their home offices. Working from home is still very popular, and office attendance remains low. “The estimate is that by the middle of [2022], you’ll see about 80% of people back to work. That may be a little optimistic because we’re still only at about a third, but some parts of the country will definitely be in that 80% range.”

The “trifecta of distress,” as Kuehl calls our issues with transportation, warehousing, and inventory, will all continue to be problematic in 2022. We’re looking at being short 120,000 drivers and need help hiring translators as recruiters look outside the U.S. to fill the void. The positive outlook is that many companies are taking control of their production and bringing processes back to the U.S. “We’re looking at almost a trillion dollars of reshoring activity coming to the U.S. next year.” Automation with robotics and technology will come to the rescue by allowing us to produce in the United States. This move over the next year will ease the challenges we’re facing now. Hopefully, by the end of next year, we’ll be able to transition out of survival mode and begin planning to restructure the parts of our industry that so desperately need it.

Kuehl urges industry leaders and industry professionals to really dig into the root causes of these hardships and challenges to find longterm solutions. We’ve already seen just how harsh the impacts have been, and we’re cautioned to avoid the temptation to go for what eases these burdens in the short term. It would appear that we have some long work ahead of us as a whole to truly reshape the way our industry obtains skilled workers, takes control of the supply chain, and meets the high demand of our consumers. s p �The state of skilled trade workers isn't going to turn around quickly, and it's going to take a lot of teamwork between the manufacturing industry and the education systems to rebuild a workforce pipeline before we see any improvements.�

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