Five Economic Challenges for 2022
The United States managed to enjoy strong economic growth in Q4 of 2021. Despite challenges like rising inflation, supply chain disruptions, labor shortages, Federal Reserve tightening, and COVID variants, experts seem to believe this economic momentum will continue into 2022. This week, I’d like to briefly cover these five challenges and share some predictions for how they’ll likely play out in the year ahead.
I’ve covered this topic a few times, however it is worth mentioning again. Consumer prices rose in November at the fastest pace in 39 years and have driven up the cost of living for families. Gasoline prices have risen 58% since last year, the largest increase since April 1980. Energy prices on the whole rose 33%. Egg prices are up 12% and bacon is up 20%. Used cars and trucks? Up 31%. This has been caused, in part, by supply chain disruptions, historic labor shortages, and unprecedented government stimulus spending. Unfortunately, experts at Goldman Sachs expect inflation to worsen in the coming months before finally easing in late-2022.
Supply Chain Disruptions
Thankfully, the worst appears to be over as it relates to the global supply chain. Congestion has been easing in our ports thanks to 24/7 operations and ocean borne shipping costs fell 5% in November. The Dallas Federal Reserve Bank’s manufacturing index showed the level of unfilled orders also fell in November, as did the amount of time to deliver goods. As encouraging as this is, many are predicting we won’t be out of the woods until at least 2023. After all, the American Trucking Associations estimate the industry is short a record-high 80,000 truck drivers and COVID variants like Omicron are still exacerbating labor shortages in ports across the globe.
Unfortunately, the December jobs report from the Bureau of Labor Statistics (BLS) is not as positive as our supply chain progress. Analysts expected the economy to add 450,000 jobs, but BLS reported businesses only added 199,000 – a huge miss. Currently, there are over 2.15 million fewer workers in the labor force and 3.5 million fewer Americans employed than in Feb. 2020 – despite over 10 million job openings across the country. At December’s pace, it would take 18 more months to get back to pre-pandemic employment levels.
Federal Reserve Tightening
In an effort to stem inflation, Federal Reserve Chairman Jerome Powell has said the Fed is planning to end its bond-buying stimulus program around March and has planned at least three interest rate hikes for 2022. Any rate increases will be gradual and are likely not to have a negative impact thanks to our robust economic recovery. That said, normalizing our monetary policies may not be enough to offset rising inflation, especially given the unknown effects variants like Omicron will have on the U.S. economy.
As more of our population gains immunity through infection or immunization, variants will become less deadly but more transmissible. This increased transmissibility will undoubtedly affect staffing levels and labor shortages – something we are already experiencing as the Omicron variant makes its way through our community. This could also have a negative effect on consumer demand – particularly in restaurants and other places of public accommodation. The real threat, however, is if a new variant emerges that resists vaccinations and inflicts more severe symptoms. While there are no signs of that occurring, we must remain vigilant. Thankfully, the Food and Drug Administration recently granted emergency authorization to Pfizer for their innovative COVID treatment pill which has been found to reduce the risk of hospitalization or death by 89%.
Businesses are the Solution
Next to immunity, it is innovation from businesses like Pfizer that will pave the pathway out of this pandemic. As U.S. Chamber President and CEO Suzanne Clark said in her recent State of American Business address, “Businesses are not simply competing to win today, but to build a better tomorrow … to propel our country and world toward a brighter future of growth, solutions, and opportunity.”
The state of American business is strong heading into 2022 and, given freedom and flexibility, there’s no challenge our entrepreneurial spirit cannot overcome.