Issue link: https://iconnect007.uberflip.com/i/1433652
72 SMT007 MAGAZINE I DECEMBER 2021 trying to find workers and then using technol- ogy—automation—to offset the difference. It's one of the great conundrums when it comes to jobs: When you look at Capitol Hill it's usually the Democrats who want to raise the minimum wage and raise wages overall. At the same time, the offsetting feature of that is that it could drive automation and lead to fewer workers in some settings. So, you must find the right balance. In many instances, what I would call a starting wage has already risen above any minimum wage requirement. Matties: Right. It's all related because as wages go up, so do the retail prices. It's a sliding scale. It might be a feel-good moment that the costs are passed on. DuBravac: I think we're in that transition peri- od right now. If you look at the research that IPC is publishing every month, companies re- port that orders are up, but at the same time costs are up and profit margins are down. So, they probably haven't raised prices as much as they should to offset higher costs. In 2021, we saw a lot of triage in every in- dustry. e manufacturers I've talked to across the board were saying, "Our costs have gone up, but we didn't raise our prices for any num- ber of reasons. Short term, we're taking the hit in margin compression but longer term, we'll have to adjust prices." In 2021, on average, about two thirds of our manufacturing companies said they had raised prices or were planning to raise prices and they were up about 14.5% on average. We also asked them what they anticipated raising pric- es in the first half and the second half of next year. On average, it was 7-8% increases. Matties: On top of that? DuBravac: Yes, on top of that. I don't think we've seen the end of price increases. Con- tracts needed to be rewritten. And compa- nies needed to see if the cost increases they were facing were temporary or more perma- nent. Prices are up and companies will need to pass those forward. But I do think the rate of increase will slow. For example, energy pric- es and commodity prices, generally, are all up significantly. It's unlikely that they will double again on top of already high prices. Oil is hov- ering at $80 a barrel, give or take. I don't antic- ipate seeing that going to $160 a barrel, for ex- ample. Matties: I think the rate of increase is slowing. DuBravac: Yes, and that's ultimately what infla- tion is: a rate of increase. At the same time, in the consumer market, we had two compound- ing effects in 2020 and 2021. One was consum- ers stopped buying things, so savings natural- ly grew. Two, they had a tremendous influx of stimulus which drove up income in terms of checks from the government and any number of other mechanisms that were used to supple- ment unemployment benefits and spur spend- ing. We saw household savings increase signifi- cantly—multitrillion dollars in increases. at cushions the consumer just a little bit in 2021 and in 2022 toward the higher prices. Matties: But that buffer will run out. DuBravac: And when it runs out, I think order growth will naturally slow. So, using the auto In 2021, on average, about two thirds of our manufacturing companies said they had raised prices or were planning to raise prices and they were up about 14.5% on average.