Who’s In Charge Of The Economy? The Virus


The Administration thinks that more spending will deal with our inflation even though our federal debt-to-GDP ratio is at record high levels. The Federal Reserve thinks it can keep the economy growing while taming inflation with interest rate hikes. But the real driver of our economic outcomes will be the virus and its impact here in the U.S. and in other countries like China that are closely tied to ours. The virus will affect workers and work activity and drive government policies to deal with the outcomes. And, other major world disruptions like the war in Ukraine that are unrelated to the virus will further complicate the picture.

When millions of “little things” don’t go as they used to, that’s “sand in the gears” of growth. The inability of a firm in China, due to their zero-Covid policy, to deliver simple wire harnesses essential in car manufacturing can shut down an auto plant in another country. All companies providing inputs to that plant suddenly find they can’t sell their products and the problems spread. Such supply chain disruptions can have magnified impacts on employment, output, and prices, and are not easily repaired. The intricate network of outsourcing and trade relationships is very vulnerable to disruptions.

In the U.S., disruptions are widespread. Nearly a third (31%) of NFIB’s 300,000 member firms (approx.) report that the recent surge in Covid has had significant or moderate negative impacts on their businesses. Of those impacted by the surge, over 70% reported a negative impact on sales, and a few reported a favorable impact, the balance reporting “no impact”. For almost 40%, the impact was significant or moderate (vs mild or none).

Work attendance was also adversely impacted. Sixty-four percent of the owners reported labor problems, 45% of them reporting a serious or moderate impact (vs mild or none) on attendance. Added to all that, over 80% reported supply chain disruptions with over 50% of them reporting significant or moderate loses of sales opportunities.

Adding to all of these “direct” effects, the impact of government Covid regulations on businesses, makes it quite obvious that the virus is driving economic activity. The bug is the driving force.

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