The past two years have been a wild rollercoaster ride for the economy. Unfortunately, it doesn’t look like things will settle down anytime soon.

Recently, the U.S. Bureau of Labor Statistics (BLS), released its latest job numbers and reported that the economy gained about 263,000 jobs in September 2022. Additionally, the unemployment rate dropped to 3.5%, a percentage that had not been seen in half a century.

So, with all this great news, it’s all rainbows and butterflies, right?

There is another set of numbers rearing its ugly head – economic inflation. If you’ve tried to fill your gas tank, buy groceries, or purchase a home or vehicle, chances are you’ve been hit head-on by inflation. Recent numbers peg the annual U.S. inflation rate at 8.2% compared to last year, holding at what economists say are highs not seen in decades.

What does that mean for consumers? It means the price of everything is going up as costs are passed from suppliers to manufacturers to distributors to us. And although we’re focusing specifically on the manufacturing industry, every industry faces the same challenge. Long story short – inflation has a way of making us all pay.

How does inflation impact manufacturing?

Inflationary pressures extend over every industry like a thick blanket of fog, creating confusion, fear, and concern for investors, workers, and consumers.

For example, the Core Consumer Price Index (CPI), a measure used by economists to determine long-term price trends across the economy, has also been rising, up 6.6% year over year in September and hitting 40-year highs. Core CPI removes volatile goods like food and energy costs (oil and gas), so we can get a more accurate vision of how prices fluctuate.

With all the indicators here and the cost of goods and services rising, what does it mean for manufacturing, economic growth, and our general cost of doing business?

A lot.

Rising inflation can ripple through the economy, leading to a recession if uncontrolled. For manufacturers, distributors, and end users, it means adjusting to higher prices in the short term and developing better long-term strategies and adjustments.

Gas Prices Are Higher

The price of gas, diesel, and oil are costs that impact everything from the price of raw materials to the average prices of finished goods and services.

When gas costs rise, it stresses the entire supply chain, starting with the raw materials. In turn, manufacturers pass price increases on to distributors, who then eat the costs and raise prices for end users. Although there are some protective measures manufacturers can use to control costs, as inflation rises, so do prices.

Labor Costs Are Rising

It wasn’t easy hiring people to fill manufacturing jobs before the pandemic, and current conditions won’t make it any easier today.

The National Association of Manufacturers (NAM) noted that nearly 1.4 million manufacturing jobs were lost at the start of the coronavirus pandemic. Although about two-thirds of those jobs were refilled by the end of 2020, close to 570,000 were still unfilled. Data from the NIST paints a similar picture, as the number of open manufacturing jobs in 2021 spiked to nearly 900,000.

There are still hundreds of thousands of available jobs in the manufacturing industry, but what can employers do to get qualified people to walk through the door? The answer might be as simple as paying more money.

Paying higher wages attracts more talent (and more applicants overall). Raising wages for current employees reduces the risk of turnover and lost capital spent hiring and training someone to replace an employee who is leaving. Increasing wages can get more feet on the production floor and keep those employees happy and thriving. It’s also worth noting the manufacturers who have performed the best coming out of the pandemic are paying higher than average wages.

Ripples and Waves

It’s been said before, but the supply chain is like a spider’s web.

At its best, the supply chain works flawlessly, getting materials and goods from one point to the next without delay. However, one misstep can throw the entire ecosystem out of alignment, creating a butterfly effect that can leave manufacturers, distributors, and end users reeling.

Let’s say there’s a price hike for raw materials due to higher gas prices, equipment management costs, etc. That’s fine; these things happen, but it eats into a manufacturer’s profits. To recoup lost money, they raise prices for the distributors, who eat the costs associated with the raw materials and the cost of manufacturing, shipping, and other value add processes. Distributors now have a problem and need to raise their prices, resulting in more expensive products for end users.

Suppliers, manufacturers, and distributors can fight inflation somewhat by aligning themselves to ensure materials and products are ordered in advance, ensuring those products aren’t subject to market fluctuations.

The ripples felt in the supply chain also apply to the companies, making waves in their short- and long-term plans.

Inflation and manufacturing have an interesting relationship. Manufacturers are among the first hit when prices increase, so they need to pivot sooner and more abruptly than others. If the situation worsens and is prolonged, interest rates will also rise, making it more difficult for companies to borrow money for necessary improvements.

When interest rates increase, it’s more expensive to borrow money. As a result, some companies may choose not to invest in research and development (R&D) or pump the brakes on rolling out new products. It could also mean that some maintenance projects are put on hold, hindering manufacturing growth and putting the company in an awkward position if machinery breaks down.

Suppliers, Shipping, and Even Packaging May Change

From start to finish, inflation has the power to impact every link in the supply chain.

As gas prices increase, shipping costs also go up, making it more expensive to move finished goods from one side of the United States to the other. On top of that, as crude oil prices increase, the cost of raw materials also rises. For a company like Kris-Tech, that could mean paying a premium for petroleum-based products like polymers or searching through suppliers for the best price.

Some of the impacts of higher inflation can be fought off more effectively than others. It makes sense to have a large group of suppliers, but can be difficult to find specialty materials with few producers. It’s also possible to combat inflation by using less expensive packaging techniques, like reusing wire reels sometimes.

Rising shipping costs are the most difficult for manufacturers and distributors to swallow because they are tied directly to the cost of fuel. In this case, being transparent with customers and giving them as much time to prepare as possible can go a long way.

What Does Rising Inflation Mean for Jobs?

More inflation means a higher cost of living. The same can be said for companies that live or die by their bottom lines.

Smaller companies may have a harder time finding, attracting, and retaining talent because more money is going toward production and shipping costs. Employees also want higher wages to offset the higher cost of living. As a result, manufacturers may have to change how they hire employees.

But, like everything else, hiring practices will change over time. Manufacturers that invest in R&D to improve their automation efforts, attract and retain employees with good wages and benefits, and communicate with team members and stakeholders will thrive.

Get the Latest Copper Pricing

See the most up-to-date information with the latest market data available.

Learn More