Overall U.S. business inventories increased, for the most part, in May. However, auto inventories did end up decreasing. The nation is still dealing with a shortage of goods, which has affected inventories all year. Therefore, this rise in inventories is positive for the future. However, motor vehicles are currently in short supply, for many reasons, so this decrease in inventories might hurt the industry as a whole in the coming months.
Since regulations and laws revolving around the COVID-19 pandemic began to go away this year as more Americans became fully vaccinated, a huge surge in consumer demand for goods and services occurred. While consumer demand is slowly shifting from goods to services, businesses are still struggling to keep up with this huge increase, especially because of the lower business activity levels during the pandemic all last year.
Global supply chain demands have also hurt inventories. Warehouses aren’t able to stock up on items as quickly as they used to. Raw material and labor shortages have also hurt inventories for the last few months. While more workers are being hired, the amount of people unemployed hasn’t actually changed that much. Therefore, labor shortages may continue to affect inventories negatively.
When it comes to the raw material shortages the nation is facing, the auto industry is mainly getting the short end of the stick. For months now, there has been a shortage of semiconductor chips, items that are vital to creating new cars. As a result, the price of cars has surged. The amount of cars being made has decreased.
Many economists previously thought that this issue would work itself out, however, as consumers stopped buying cars this year (when compared to the amount of cars people bought last year during the middle of the pandemic). As consumer demand is now lower, there is the thought that auto manufacturers will have the chance to catch up.
However, auto vehicles decreased by about 5.5% in May. Retail inventories as a whole decreased by 0.8%. However, inventories for various businesses as a whole rose by 0.5%, according to the Commerce Department.
Therefore, the auto industry still has a ways to go until these problems even out. If consumer demand for new car purchases continues to slow down, auto inventories may have the chance to rise.
Many are attempting to find solutions for the worldwide chip shortage. U.S. lawmakers already passed bills allowing factories to be built to create semiconductor chips in the United States. However, this won’t happen for years, as the factories need to be built. Everything is starting from scratch. Therefore, this current chip shortage will still be an issue for the next few months until things sort out.
These inventory struggles are yet another example of the fluctuating world the COVID-19 pandemic has left businesses, companies, and regular people in. However, it is good to see that inventory for most businesses have risen, which may help businesses as they struggle to meet the huge consumer demand.