Q1 Economic Update and the Impact on Procurement

 

Introduction

Its crazy to think that it has been over a year since the US went into lockdown and quarantine began. With it came a massive push for social distancing. The portion of the workforce who could, shifted almost immediately to working remotely. With most having remained that way since. Those who could not work remotely either lost their jobs, or were forced to work under less than ideal circumstances. Fortunately, with the accelerating rate of vaccination in the United States, the immediate economic impact of COVID could be in sight. The larger question is the level of permanent economic damage caused by the pandemic. While the total impact is unknown, Q1 trends provide mixed answers. To see this, one needs to only look at Unemployment levels and Consumer Confidence indices.

 

Unemployment

Despite unemployment falling, it is still nearly double what it was a year ago – and the labor force participation rate has quickly stagnated, its nearly 2% below where it was a year ago.  Of the 10 million people unemployed in January, about 4 million had been out of work for over six months.

The unemployment rate does not tell the whole story. A large number of workers continue to file for unemployment compensation. For most of the year, claims have hovered between 700,000 and 1,000,000 per week. For the week ending March 20th, claims were at 684,000. While this number does indicate a positive shift, it is still below pre-pandemic numbers. ¹

Consumer Confidence

On a more positive note, after three months of consecutive declines in the consumer confidence index through January 2021, February and March have both seen improvements. To quote Lynn Franco, the Senior Director of Economic Indicators at The Conference Board: “This course reversal suggests economic growth has not slowed further. While the Expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months. Notably, vacation intentions—particularly, plans to travel outside the U.S. and via air—saw an uptick this month, and are poised to improve further as vaccination efforts expand.” ²

As the country turns the corner on COVID, especially with vaccines, consumers are going to becoming increasingly confident in the economy being able to jump back. Barring a major disruption in vaccine rollout, there is every reason to believe this confidence should continue to grow.

Impact on Procurement

Economic activity in the manufacturing sector grew in February, with the overall economy notching a ninth consecutive month of growth. At the same time, raw materials prices continue to rise steadily. The ISM price Index is at the highest level it has been in nearly three years, with expectations being that it could continue to rise. ³ Levels of growth are going to differ based on industry. But procurement teams should be aware of rising prices, and taking that trend into account when executing their sourcing strategies.

In summary, there are still a lot of unknowns. Businesses face many difficult decisions. There are uncertainties surrounding COVID-19 itself, and this uncertainness brings forth difficult questions regarding operations, customers, and costs. But Unemployment is (albeit slowly) falling, while Consumer Confidence and Industry is growing.  Procurement professionals should continue to protect to be risk conscious, while starting to execute on a plan for a more positive future.

If you enjoyed this brief Economic, please be on the lookout for part 2, coming in Q2 2021.

 

¹ https://fred.stlouisfed.org/series/CIVPART

² https://www.conference-board.org/data/consumerconfidence.cfm

³ https://www.ismworld.org/globalassets/pub/research-and-surveys/rob/pmi/rob202103pmi.pdf