Passing ‘Buck’ To Consumers…

Hey 5-Star Trader,

A sense of “normalcy” is returning to everyday life as government officials lighten up certain Covid-19 restrictions. But, as the world begins to put this pandemic behind us, there are new economic hardships arising…

Unforeseen consequences…

Initially, most companies thought the pandemic would cause much less demand so they cut their resources. In addition to this adjustment, a vast majority of companies also had to shut down production for many things (like factories) to stay in accordance with the government guidelines.

What they did not anticipate was there would be a huge demand in areas in certain sectors of the market. Things like swimming pools, home goods, and furniture spiked in popularity. So many people were at home and not spending money on travel and looking for DIY home renovation projects to pass the time.

Not enough to go around…

The high demand met with the limited resources has since resulted in a huge supply chain crunch— so how will this affect business, consumers, and the market?

Companies have a fiduciary duty to their shareholders to make profits. If materials and goods cost them more, they will absolutely pass that cost on to consumers (which we are already seeing in prices for lumber, metal, and more). Consumers should be ready to pay higher prices and ask their boss for a raise because wages aren’t going up at the same rate as the price of goods.

I also don’t see this spike in pricing ending anytime soon. Once the cost of goods is raised, do you really think companies will ever lower the price back down again? Doubtful. If they can charge $500 more for a mattress because of “supply chain issues” right now, once the supply chain is running the consumer will not likely see any of the money back in their wallets. Instead, it will be padding the profits for these corporations.

In the short-term I’m not concerned about the supply chain crunch’s impact on the stock market and corporate earnings because corporations aren’t going to take the brunt of this, consumers are. My advice on the consumer side would be to stay aware and update budgets and see if they can get additional cash flow by asking for a salary review, cost of living increase, etc., because these prices look like they are here to stay. In the long run, I could see consumer behavior shift toward cheaper, more sustainable options (such as up-cycling furniture instead of buying something new). Only then might price start to even itself out.

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