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Labor costs will continue to rise at a faster-than-usual pace this year. Wage growth should ease from 5% to about 4%, but that is still above the normal 3% rate.
Business spending on capital equipment may be slowing on expectations for slow economic growth or a mild recession this year. Spending peaked in August of last year, and has been on a slow downward trend since then.
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Prices of some materials, such as copper and steel, are rising because of expectations that China’s demand will rise in the future. China’s growth is expected to strengthen now that most COVID-19 restrictions have been lifted.
Most semiconductor backlogs are still elevated, and will not likely clear up until well into 2023. Chips for computers and phones are in surplus as demand wanes, but microcontroller and automotive chips still face acute shortages. Ramping up production takes time, as factories take years to build. Another problem: Like most complex industrial machinery, chipmaking equipment requires chips, too. In short, don’t expect the chip shortage to significantly improve until 2023, at the earliest, and it may drag out into 2024. But if a recession happens this year, that could ease shortages.
Sources:
- Census Bureau, Durable Goods Report (opens in new tab)
- Census Bureau, Business Inventories (opens in new tab)
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