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What Hoarding Toilet Paper Means for Economic Data

More and more companies seem to be choosing to build up big supplies of essential items.

WHEATON, MARYLAND - APRIL 16: A customer reaches for one of the last packages of toilet paper after a panic over supplies. 
Photographer: Chip Somodevilla/Getty Images North America

Last year, the world became intimately acquainted with the idea and practice of hoarding toilet paper. Grocery shelves were suddenly cleared as people rushed to build up their own personal supplies of the white stuff. While the supply of bathroom tissue hadn’t suddenly changed, a sharp jump in demand for it created the appearance of a shortage.

Now, Bank of America economist Ethan Harris points out that the toilet paper-esque strategy of hoarding has gone global, in the sense that more and more companies are buying essential materials, components and other inputs, in order to manage potential future supply shocks and deal with resurgent demand.

They’re not the only ones to make an observation along these lines. In a commodities note published late last week, analysts at Goldman Sachs led by Nicholas Snowdon pointed out that China is “is no longer the marginal buyer dictating price — as has been the case over much of the past two decades — but [is] now being crowded out by Western consumers.”

Instead, Western economies are acting more and more like the China of the past in building up big stockpiles of indispensable commodities to protect against price spikes and shortages. And while the Goldman analysts certainly didn’t mention toilet paper in their note, the thought process is similar. Demand has far outstripped supply thanks to a mismatch between the ordering needs of paranoid consumers and the ability of suppliers to ramp up production. After all, most businesses have spent recent years perfecting the idea of just-in-time supply chains.

So what does the new strategy of demand-led hoarding mean for the economy? As the Bank of America economists point out, it means we should be identifying the impact of supply-side shortages on economic data, rather than assuming that activity is purely a function of demand.