How Demand Outpaced Supply

Mr. Demand and Mr. Supply were constantly jogging along the Economic Trail.  Most of the time, they ran in tandem, at about the same speed. But sometimes Mr. Supply ran ahead of Mr. Demand and often the roles were reversed. But then, they would instinctively adjust their pace to get back into balance once again.

Mr. Price always accompanied Mr. Demand and Mr. Supply on the trail. Mr. Price could be unstable so instead of jogging he rode a bicycle. When Mr. Demand got ahead of Mr. Supply, Mr. Price would pedal faster to get ahead of Mr. Demand. Then he would force Mr. Demand to slow down so Mr. Supply could catch up to him. When Mr. Supply ran ahead of Mr. Demand, Mr. Price would drop back, causing Mr. Supply to slow down and Mr. Demand to speed up. In both circumstances, as soon as Mr. Demand and Mr. Supply were back in sync, Mr. Price could be found pedaling right beside them.

Everything was moving along fine on the Economic Trail until March of 2020 when both Mr. Demand and Mr. Supply were infected with COVID-19. Both guys immediately stopped and sat down on the trail  to recover. Fortunately, Mr. Demand had only a mild case of the virus. Soon he felt much better and started running again at a modest pace.  Unfortunately, Mr. Supply got much sicker from the virus. He lay weak and dormant for a couple months. He finally got up and tried to run but stumbled along at a slow pace.

Mr. Demand continued to recover and picked up the pace. His Uncle Donald even gave him some strong coffee to help his recovery. Mr. Demand was now running much faster than still sickly Mr. Supply, and the gap was widening. Mr. Price had also been infected but was asymptomatic. He had stopped on the trail, waiting for Mr. Demand and Mr. Supply to recover. He had followed Mr. Demand back on the trail and expected Mr. Supply to follow them, but he had not.

Now Mr. Price was pedaling faster but didn’t know quite what to do since Mr. Demand was not slowing down and wasn’t concerned at all that Mr. Supply was falling so far behind. The gap between Mr. Demand and Mr. Supply had not been this wide for many years.

Even though Mr. Demand appeared to be healthy, his Uncle Joe was concerned he was not running fast enough. So, Joe gave him an energy drink, a stimulus, to get him to run faster. But no one was concerned with the condition of Mr. Supply. Even though Mr. Supply was increasing his pace, Mr. Demand was still running much faster.

Uncle Joe was so happy that the first stimulus worked so well, he jolted Mr. Demand with a second energy drink. Now Mr. Demand was sprinting at top speed. However, even though Mr. Supply was trying to run faster, there were obstacles on the trail which slowed him down. He asked for people to work to help him run faster, but they were too distracted by Mr. Demand’s stimulus, to aid Mr. Supply. Others declined to help due to the persistence of the pandemic.  And some potential workers had left the trail altogether. He also needed a new pair of running shoes, but he couldn’t get them due to a shortage of silicon.

So, no matter how hard Mr. Supply tried to catch up, he could not, and Mr. Demand was now miles ahead of him. This motivated Mr. Price to pedal faster than he ever had since the 1980’s. He needed to get ahead of Mr. Demand and slow him down, so Mr. Supply could catch up. But he was pedaling so fast that his tires got overheated and are now highly inflated, and he fears a blowout, which could lead to a crash.

And so it goes ……

This post originally appeared in the FTR blog. For more information on FTR, the leader in commercial freight analysis and forecasting: FTRintel.com