With 2021 in the rearview, the new year looks most promising
By Joe Higgins, Quest 4 Quality
It has never been easy to predict how the U.S. economy will perform at the beginning of a new year, and 2022 is no exception.
The variables are much the same. Consumer confidence, consumer spending, unemployment, and GDP are the leading indicators, but the coronavirus is the unknown. Over the past two years Americans have suffered from record sickness, hospitalizations and deaths.
As the eternal optimist, I hope, as we all do, that in 2022 we can get back to our everyday lives.
Folks ask me at the beginning of every new year whether the next 12 months will bring them and their families wealth and prosperity. Here is my answer for 2022.
Last year I wrote about a thriving U.S. economy. Confidence was high, consumer spending was extraordinary, job growth set records, and GDP rocked. Yes, we suffered from a severe lack of labor, inflation rose the fastest in 40 years, and the ports were logjammed, but the consensus among economists is that 2022 should bring a slow return to the lives we had before the pandemic.
The downturn started in 2020 as COVID-19 raged throughout the country. Then in 2021, Americans had access to three vaccines that saved lives and reduced hospitalizations. The Omicron variant is now with us, and experts are saying that early this year the virus will recede and return as the seasonal flu.
The new year will begin with a slow and gradual rise in consumer confidence. The December number on the index was 115.9; by comparison, it was 34.6 at the bottom of the Great Recession in 2009. Consumers are feeling better today than they did at any time over the past two years. This is good news for America, as I believe confidence will rise throughout the year. Also, confidence among CEOs in a recent survey was up the most since 2000.
I expect job growth to continue at historic levels in 2022, with the unemployment rate dropping from 3.9 percent to 3.4 percent by year-end. The U.S. added 199,000 jobs this past December, and jobless claims have recently been at their lowest levels since 1952. Wages were up 0.6 percent last month, with much of the gains coming from the hospitality sector.
I realize that our dealers have struggled to find new employees, and economists have several explanations why this is the case, but we all think it will get better in 2022. Labor shortages will be with us to start the year, but according to a survey, those out of work are beginning to have trouble paying their bills. So the employment issue should begin to resolve itself as stimulus money dries up and Americans need their paychecks.
Inflation will be 2022’s most significant problem, as prices rose 7 percent in December versus last year. This represents the steepest increase since 1982 and is mainly due to the pandemic and supply chain issues. I believe businesses took advantage of all these forces to increase margins, as consumers continued to buy even in the face of inflation. The consensus among economists is that this bout of inflation will moderate by mid-year and will not look like anything like what occurred in the 1980s.
Meanwhile, corporate profits increased the most in 70 years in 2021, and debt carried by S&P 500 companies was the lowest since 1980. High profit and low debt are why the stock markets had their best year since the ’90s. With the S&P 500 up 27 percent in 2021 and 401(k)s at all-time highs, consumers will be out in your stores. Home equity is at unprecedented levels, and personal savings are still robust, which means another increase in home remodeling. While personal spending on durables broke a record last year, 2022 will see a return to the services side of our economy as the leisure and hospitality sectors command a more significant share of the spending.
This all leads me to gross domestic product, which is defined as the amount of goods and services we produce in one year. I believe 2021 will end the year above 5 percent, which would mark the best performance since the dot-com era. In 2022 we will see a slowdown from this rapid pace of growth, but a consensus of economists believe the economy will still grow by over 4 percent, still a historically strong rate.
My bottom line is simple: America will see a strong economy in 2022. Yes, there will be obstacles: inflation, overcrowding at the ports, uncertainty, continued shortages, and volatile equity markets. Omicron will impact GDP and employment, and the virus will always be the wild card affecting our future.
But this year expect a return to the life we had before COVID. Good luck in 2022.
Joe Higgins is a 43-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YourSource News contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com.