COLORADO SPRINGS (ICIS)--The shortages in semiconductors and shipping that has done so much to disrupt production of automobiles and other goods could persist for months, an economist said on Tuesday.
Increasing capacity to supply more chips and ships is expensive, so companies are reluctant to take on such projects unless they are confident that the trends increasing demand are long-term, said Marci Rossell, a speaker and former chief economist of the business-news network CNBC. She made her comments during a presentation at the annual meeting of the American Chemistry Council (ACC).
The shortage in semiconductors caused automobile companies to lower production, lowering demand for paints, coatings, plastics and other petrochemicals used to make vehicles.
Rossell attributed the shortage to the coronavirus. During the early months of the pandemic, automobile producers cut their chip orders in anticipation of a decline in demand. Instead, demand recovered and grew faster than expected.
For the shipping industry, they cut capacity by 11% 18 months ago, Rossell said. They expected that the coronavirus downturn would last longer than expected.
Instead, global shipping increased 27% over pre-pandemic levels, she said.
Some relief could come from consumers shifting their spending from goods to services, Rossell said.
The Lunar New Year in 2021 should help work down the backlog of ships and containers at US ports, she said.
Production of goods in Chinese plants typically falls during the weeks-long holiday, which reduces shipments out of China.
Rossell described the shortages in semiconductors and shipping as medium-term trends that are contributing to inflation.
Short-term trends cover things like lumber and appliances, she said. A lot of these short-term trends are specific to individual markets.
Appreciating this distinction is important because the Federal Reserve places less weight on such trends when considering interest rates and other aspects of monetary policy.
The US central bank places much greater weight on the trend mean rate of inflation, which discounts extreme changes in prices, Rossell said.
"Most of the inflation, while it is terribly inconvenient and makes it hard to do your job - in general - those problems will abate," Rossell said. "They are pandemic related. That is not what monetary policy is concerned about."
A long-term threat is labour shortages, which are caused by fewer births, more retirements, restricted immigration and the immediate effects of the coronavirus, she said.
The ACC Annual Meeting runs through Wednesday.
Thumbnail image shows containers stacked at a port. Image by Shutterstock