Navigating Economic Currents – Childcare Costs, Climate Impacts, and Supply Chain Shifts.

In Episode 7 of KPMG's Opportunity (In)sight newsletter, we explore three economic trends shaping business strategy and outcomes. These trends include:

• The rising costs of childcare and its impact on the labor market analyzed through our brand-new Parental Work Disruption Index
• The increase in extreme weather events and their impacts through the lens of the “broken windows fallacy”
• The evolution of global supply chains, including the drivers and nuances of strategic shoring

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The Parental Work Disruption Index: A New Measure of the Childcare Crisis

What’s new: KPMG US unveiled a new Parental Work Disruption Index , which allows us to comprehensively quantify and track, on an ongoing monthly basis, how the childcare crisis is affecting different groups of working Americans. The index compares the number of workers affected by inadequate childcare options to the pre-pandemic baseline.

The index is up 22% compared to our pre-pandemic baseline. Between 1.2 and 1.5 million workers are affected by inadequate childcare options each month. Women make up almost 90% of these workers.

Why it matters: The potential growth of an economy is determined by the size of the labor force and how productive these workers are. Childcare problems undermine both sides of that equation.

Between nine and 26 million hours of potential work are lost due to childcare problems in any given week. The losses per year are even more staggering, ranging between 468 million to 1.4 billion hours.

Go deeper: There are different trends related to men and women of various ages.

• Women aged 25-34 and 35-44 together account for around 70% of all workers affected. Their share has not changed much over time. In certain months, this has added up to over half a million women in each group. Women aged 45-54 are also impacted; their proportion has grown over time.
• Men are increasingly being affected by childcare problems. Though the total number is still much lower than for women, men’s share has doubled from 6% in 2000 to 12% so far in 2024. This has been driven by men in their prime working years of 25-54.

Bottom line: KPMG Senior Economist Matthew Nestler, PhD , concludes: “The childcare crisis has resulted in a sizable part of the workforce that is either working part-time or missing work entirely due to childcare problems. This has become a structural feature of the US economy and society...That results in millions of lost work hours, which have downstream effects on productivity, contribute to burnout among working parents and coworkers and hurt bottom lines. Lower earnings hurt women’s career mobility and negatively affect children’s ability to develop and succeed.”

The increase in extreme weather events and the broken windows fallacy

What’s new: While it’s still too early to assess the economic impacts of Hurricane Helene and Milton, the human tragedy is apparent and devastating. In a recent Economic Compass, KPMG Chief Economist Diane Swonk discusses the economic impact of natural disasters, specifically hurricanes, through the lens of the "broken window fallacy ."

This theory, proposed by French economist Frédéric Bastiat, suggests that while the immediate spending on repairs for things like broken windows after a disaster can stimulate economic activity, it ultimately leaves us with less wealth, because of what goes unseen.

Why it matters: The frequency of weather events, and the ferocity of those events, continue to increase, driving three concerning trends:

• Our ability to rebuild and recover is slowing down: Wealthy countries tend to rebuild more rapidly after disasters than those with less wealth. However, the US has been much slower to rebuild than it did in the past, in part due to the surge in the frequency and ferocity of natural disasters in recent years.
• The cost of insurance is rising: The cost of climate change is already being felt in escalating insurance costs. Flood and fire insurance are particularly prohibitive.
• The economic impact of disasters is more pronounced for lower-income households: Spending often comes from a rapid drawdown of savings, which can leave us worse off over time. This is particularly true for lower-income households, who are most exposed to climate-related risks and often lack the means to rebuild after a disaster.

The Bottom Line: Damages from natural disasters will increasingly become a larger determinant of economic performance going forward. This underscores the urgent need for action to mitigate the impacts of climate change and build more resilient communities.

The Proximity Premium Report

What’s new: The Proximity Premium report by KPMG Americas supply chain, tax leaders and the KPMG US Economics team underscores a pivotal shift in supply chain strategies among US businesses, emphasizing the critical role of proximity in bolstering supply chain resilience and agility. This approach, known as strategic shoring, involves relocating supply chains closer to the US, particularly within the Americas, to counteract risks associated with global disruptions and geopolitical tensions.

Meagan Martin-Schoenberger , Senior Economist, KPMG US, offers analysis on what’s driving nearshoring efforts.

Key Insights:

• Strategic Shoring:?Companies are increasingly moving supply chain operations to the Americas, including Mexico, Central and South America, Canada and the US, to reduce lead times and improve control over operations.
• Agility and Resilience:?The report highlights the necessity for supply chains to be agile and resilient in the face of disruptions like the COVID-19 pandemic and geopolitical tensions.
• Cost vs. Agility:?While cost remains a critical factor, the report suggests that prioritizing agility and resilience can provide long-term benefits and competitive advantages.
• Tax and Data Analytics:?Effective tax planning and robust data analytics are crucial for successful strategic shoring, helping companies navigate complex regulatory environments and optimize supply chain decisions.

The Bottom Line:?As global supply chain vulnerabilities become more apparent, businesses are re-evaluating their strategies to prioritize proximity, agility, and resilience, ensuring they can swiftly adapt to changing market conditions and maintain a competitive edge.

Two trends to watch: Retail sales and housing construction

• The latest data from the September Retail Sales Report , analyzed by KPMG's Senior Economist Ken Kim , reveals a surprising resilience in consumer spending. Retail sales increased by 0.4%, slightly above the anticipated 0.3%, signaling a robust consumer base amidst ongoing economic uncertainties. This uptick follows a modest 0.1% rise in August. Read more about the report here.
• The latest figures from the September Housing Starts Report , as analyzed by KPMG's Senior Economist Yelena Maleyev , indicate a nuanced shift in the housing construction landscape. Overall, housing starts dipped by 0.5%, driven by a significant 4.5% monthly and 15.7% annual decline in multifamily starts. This trend underscores a growing caution among builders, who are wary of new projects amidst high completion rates and falling building permits.

In the news

• In a recent NPR Marketplace interview, Meagan Martin-Schoenberger, senior economist at KPMG discussed the recent port strike, which has been postponed until January. She highlighted the potential stress this delay could place on America's supply chain, noting the risks associated with storing goods for extended periods, such as disease and pests.
• Businesses added 254,000 jobs in September, exceeding expectations and signaling economic resilience. The unemployment rate fell to 4.1%, and worker pay gains were better than anticipated, at 4% annually. These positive indicators have eased analysts' recession fears. “I actually think we are in the mother of all soft landings,” said Diane Swonk, the chief economist at KPMG, said in a recent New York Times article.
• The rising cost of childcare isn't due to worker pay, as childcare workers remain among the lowest-paid, according to the BLS. Despite industry employment rebounding, low pay makes it challenging for centers to attract and retain staff in a tight labor market, as noted by KPMG in MarketWatch . While some states are introducing universal pre-K programs, care for infants and toddlers is still insufficient.
• Chief Economist Diane Swonk discussed the potential far-reaching economic impacts of Hurricanes Helene and Milton in interviews with CNBC , Bloomberg TV , and MarketWatch . She provided her insights on the possible toll these recent storms could have on the economy.
• KPMG's Parental Work Disruption Index was featured in Parents Magazine. The story reveals that the U.S. childcare crisis is causing an annual loss of 1.4 billion hours and costing families up to $1,504 in lost income. The situation is worsened post-pandemic, with fewer childcare options available for working families. The report was also featured in Forbes , Motherly , and Yahoo U.K.

Make the Difference

According to The Proximity Premium report, 76% are prioritizing immediate strategic shoring actions, and Americas’ share of supply chains to the US is expected to rise by 16%. Watch this video highlighting the benefits from strategically reshaping supply chains in the Americas.

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