January '21

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68 • RV PRO • January 2021 rv-pro.com Consumer Confidence in Flux Spending by consumers accounts for some 70 percent of economic activity and is arguably even more important than cap- ital investment for the nation's overall busi- ness health. Household spending, though, is driven by public psychology – and the most recent reports from Moody's Ana- lytics show that the nation has a lot of catching up to do. By late 2020, consumer confidence was running as low as it was in March and April – during the worst days of the pandemic. If uncertainty about the course of the pandemic and the availability of a reliable vaccine are reason enough for high anxiety, there's a more immediate driver of con- sumer discontent: The noticeable drop in take-home pay over the past year. "Wage and salary income, including the value of benefits, is forecast to decline 1.3 percent when 2020 numbers are final- ized," says Hoyt. Those numbers represent a reversal in fortune from the 4.4 percent increase of 2019. (Wage and salary income figures exclude government payments such as the 2020 pandemic relief checks.) Pandemic-related furloughs and business closings accounted for a major portion of wage declines. Moody's expects the unem- ployment figure to come in around 8.5 per- cent when 2020 numbers are finally tallied. That's a sharp increase from the robust 3.5 percent level consumers were enjoying as recently as last February. Consumers might improve their outlook if the unemployment picture were bright- ening. Yet the expectations here are for only gradual improvement. The unemployment rate is expected to decline to 7.8 percent by the end of 2021. "The labor market will not recover all COVID-19-related job losses until the second half of 2023," says Koropeckyj. A brightening jobs picture should trans- late directly into a boost in take-home pay. Moody's anticipates 2021 wage increases to come to 2.5 percent – a level high enough to allow shoppers to exhale, but too low to spark rapid spending. Hoyt's expectations for improvements in the public psychology are suitably con- ditional: "We are assuming a slight upward trend in consumer confidence until we get a vaccine or an effective treatment, at which point it will probably move up faster." Tightening Labor Market Ahead Conditions in the labor market also are preventing a faster recovery, experts say. Not only is the unemployment level high, but experts say employers are not finding the job applicants they need. "Companies are having problems recruiting and getting folks to apply for work," says Palisin, with The Manufac- turers' Association. "Some things going on in the labor market are probably contributing to that. First, the portion of the workforce still on furlough will probably not take another job but will return to the one they were furloughed from. Second, there are child- care issues as students go back to school online and it's difficult for those people to get back into the labor pool. Finally, there is some level of health concern by employees going back into the work- place, especially if they are older workers or higher risk people." While the future of the labor market remains unsettled, exper ts say the opening months of 2021 might provide clues as to whether hiring difficulties will continue. "Perhaps as we get into the new year people will start to feel more comfort- able returning to the workforce, the childcare issues may be resolved, and a vaccine will be developed," Palisin says. "But right now there seems to be a lot of hesitancy in the labor pool. People are sitting on the sidelines to see what is going to happen." Competition for quality workers makes the hiring process all the more difficult. And when the labor market gets tight, upward wage pressure can't be far behind. "To remain competitive, companies are restructuring their compensation packages to retain higher-end skilled workers," Palisin says. "Retirements by Supply Chain Woes Businesses are facing a familiar challenge carried over from the pre-pandemic world: Supply chain fragility. "Trade disputes are still a problem that has not been resolved," says Tom Palisin, executive director of The Manufacturers' Associ- ation, a York, Pa.,-based regional employers' group with more than 370 member companies. "The hope is that there's some kind of trade deal with China. Higher tariffs don't help in the middle of an economic slowdown." The pandemic has made the situation more severe. "In the worst of the COVID-19 lockdown, nothing was coming out of China," says Bill Conerly, principal of his own consulting firm in Lake Oswego, Ore. "That only exacerbated the problem of time lags for for- eign-sourced goods." So far, he adds, few companies seem to be making radical shifts in their sourcing, due to a natural hesitancy to change suppliers. However, there is growing pressure to obtain materials not only from domestic suppliers, but also from multiple factories. Another effect of recent supply disruptions may be the building of inventories to higher levels. "Companies should no longer rely on just- in-time inventory strategies, which too often have become just-too- late failures, and stockpile more supplies both in the United States and abroad," says John Manzella, a consultant on global business and economic trends based in Amherst, N.Y. "This approach reduces effi- ciencies but favors risk reduction." – Phil Perry

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