Supply & Demand Developments of the Week: In Charts

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Dining in or dining out? A con-fusion-ment.

The first chart below shows extraordinary changes in real food consumption during the early pandemic period.  As expected, dining out dropped dramatically (blue line) while grocery spending surged (blue line). Notice, before the pandemic, dining out represented nearly 42% of Americans’ food consumption spending while groceries were about 58%. However, for a short period, spending on groceries increased to nearly 75%.  This change of course led to strong demand for home grocery deliveries and e-commerce in general.    

Today while spending patterns appear as before the pandemic, an important question concerns the demand for home delivery services. A recent study reported that over 90% of people who had previously used online delivery services would likely revert to their original ways of shopping – in person. Specifically, the study noted that the number of users for grocery deliveries increased by 113% during COVID but almost half of the new adopters would not continue to use it once the pandemic ended.

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The price of natural gas is really heating up

The Russian invasion of Ukraine generated significant disruption in energy markets. Natural gas is used extensively in Europe to heat households, and most of it is imported. The war disrupted the supply to Europe and caused energy prices to increase dramatically. 

The FRED graph below shows data for natural gas prices in Europe (blue) and in the United States (red). From 1991 to 2008, prices between Europe and the U.S. were nearly identical. Between 2008 and mid-2020, only small differences emerged. However, since then prices have diverged. 

The price in the U.S. did not change much at the onset of the Russian invasion in late February 2022. By contrast, European prices steadily climbed, reaching an extraordinary peak in August 2022. With new suppliers, and increased exports from the US, natural gas prices in Europe have dropped notably. However, winter has now set in (so far, an unusually warm European winter) and demand will certainly rise –  and so will prices. 

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Tesla’s value is losing its charge

The average price of a used Tesla hit an 18-month low in January 2023, down over $15,000 from its peak last July. Why are Tesla and other EV prices dropping? 

First, the anticipation of the new EV tax credit (from the Inflation Reduction Act passed in 2022) means buyers will wait and ignore whatever is on the market now – specifically used EVs. Second, the market is currently flooded with Tesla – models 3 & Y.  Many Tesla owners are looking to unload their older models because the factory warranty expired – Tesla does not offer extended warranties for model 3 or Y. Third, and importantly, high-interest rates and uneven economic factors translate into less spending on pricey new and used EVs.  Fourth, a lot of dealers got burned buying up Tesla and other EVs over the last year. It turns out they could not sell the expensive cars, especially after the high-income buyers purchased and then left the market. Now, as prices drop, dealers are selling cars at auctions.  Finally, Tesla cut new car prices. 

More general, growing uncertainty around basic earth metals/minerals – especially lithium, the carbon footprint of mining, and other EV supply chain issues will likely contribute to higher prices for new EVs, which in turn will slow overall demand for EVs. 

There are thus mixed messages in the EV market. Nevertheless, as the chart shows, Tesla buyers are suddenly in a much better position.  

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Time for a career transition

When the pandemic struck in early 2020, lockdowns and decreased consumer demand erased millions of jobs.  The leisure and hospitality sector was especially hard hit. And while most industries have recovered, employment in some sectors is still far short of pre-pandemic levels – utilities, mining and logging, government, and leisure and hospitality. However, as the data from the Bureau and Labor Statistics demonstrates, Transportation and Warehousing have prospered. It increased employment by nearly 700,000 jobs. 

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The egg-flation crisis

While prices for many products are now declining, weather and disease have really influenced egg prices. In fact, egg prices are up 60% YOY, a level not witnessed since the 1970s.

Early last year a deadly avian flu outbreak devasted poultry flocks, especially egg-laying hens. Egg prices were also influenced by higher input costs – due to drought and war, such as grains and corn. The consequence is $7 to $9 dollars for a dozen eggs – depending on location and brand.  

The chart shows the simultaneous decline in egg inventory (yellow) – due to consistent outbreaks of avian influenza (vertical lines) – and the rise in wholesale egg prices.   

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