Supply and demand

Yesterday, while looking at home improvement items in a big box store, I overhead a conversation between a store employee and a customer. The customer was reacting to the high price of flooring. The employee said, “Yes, ever since the Covid craziness prices have gone through the roof.” The statement, a way of engaging the customer and perhaps encouraging a sale, was a simplification of a complex problem. There certainly have been and continue to be supply chain issues during the pandemic. Shifts in consumer demand have created shortages, at least in retail sales outlets. Some of the shortages have been relatively short-term. I haven’t noticed any shortages of toilet tissue for many months, although I have noticed that the stores where we shop seem to stock fewer of the large packages and have filled the shelves with more small packages. We never experienced the shortage as a problem. We purchased tissue when we needed it and never felt a desire to stock up and fill our cupboards.

Purchasing building supplies, however, is conundrum. The price of lumber is high and doesn’t seem to be giving any signs of heading down anytime soon. It isn’t quite the issue of supply and demand that was affecting toilet tissue, or at least it is a bit more complex. It is true that more people staying home triggered an increase in home improvement projects, creating an increase in demand for lumber. Prices started to go up. But the high prices started a slow down in new construction and the actual demand for lumber wasn’t excessive because builders adopted a “wait and see” attitude, delaying projects in hope that prices would decline. Thus at the current moment, prices are high, but there are few real shortages. Earlier this week, I purchased a single 2 x 10 x 10’ pressure treated board for a front step project at our son’s home. I paid nearly $60 - about 3 times the price I paid for pressure treated lumber a year ago when making repairs to our deck in Rapid City. Then I went out into the lumber yard to get my board and watched as the yard attendant moved stacks of unsold boards to get at the board I needed. There was no shortage of supply. The lumber yard was over stocked with lumber. High prices have definitely affected demand and there are plenty of discretionary projects that can wait in hopes of decreasing prices.

I don’t understand all of the dynamics of the pandemic economy, but I do know that it is more complex than simple supply and demand.

In the store where we purchase groceries, there is plenty of chicken available for sale, but the price is going up dramatically - much faster than other meat. They say there is a shortage, and some of us are decreasing the amount we purchase, but I can find chicken for sale if I am willing to pay a higher price.

At the same time, there is a widespread shortage of workers. Businesses have “now hiring” signs out all around time. However the shortage has not affected the price at all. The United States continues to experience dramatic wage stagnation. If there is a shortage of supply and an increased demand, you would expect the price to go up, but it appears that the majority of employers are unwilling to pay increased wages and benefits despite the shortages.

I read somewhere that there is a shortage of ketchup packets and that some restaurants are limiting the amount of ketchup a customer can take. We don’t buy much fast food at our house and we don’t have much need for ketchup in packets, so I haven’t noticed, but I guess that the increase in carry out food sales during the pandemic has led to a shortage of supply.

The price of chlorine is high because of shortages. I’m not sure what created the shortages, but I suspect that it has something to do with more intense cleaning and disinfecting in order to combat the spread of disease. At least I haven’t noticed a dramatic increase in the number of swimming pools, so I doubt that the cause is something like that.

Shortages and increases in price are related to supply and demand, but there are many factors that can affect demand. In the case of toilet paper, the threat of shortages really spiked demand. People were definitely hoarding the product. The recent cyber attack on the Colonial Pipeline caused a decrease in supply of gasoline across the southeastern United States, but people also dramatically increased demand during the shortage. They were making sure that their vehicles were topped off at all times, thus effectively increasing the amount of fuel in storage. It was just that the fuel was being stored in vehicles rather than dealers’ tanks. It is unclear whether or not the increased prices currently being charged will go back down now that fuel has begun to flow in the pipeline.

There are always those who attempt to profit from market fluctuations, but in general it is a challenging way to earn a living. There is plenty to be lost when the market is misinterpreted. I have no plans to invest my retirement savings in lumber speculation and I have no hoard of ketchup packets. My mother-in-law was always careful to save all of the extra ketchup packets from a visit to a restaurant. Perhaps if we had saved all of those packets we could be selling them on E-Bay for supplemental income. I have a couple of packages of chicken thighs in the freezer, but I think we’ll probably just cook them on the barbecue some evening rather than offer them for sale at a profit.

And, for the record, I haven’t been quick to dive back into the labor market. Maybe I’m waiting for the price of labor to go up, though my career field is not one noted for high wages. More likely, I’m just learning to enjoy having a bit more time for projects. On the other hand, I can’t afford to build many more steps out of pressure treated lumber. Some of that will have to remain at the lumber yard.

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