With 2021 in the Rear View Mirror 2022 Looks Promising

by Joe Higgins

It has never been easy to predict how the U.S. economy will perform at the beginning of a new year, and 2022 is not an 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 sickness, hospitalizations, and deaths. As the eternal optimist, I hope that in 2022, we can get back to our everyday lives.

People ask me at the beginning of every new year, will the next 12 months bring wealth and prosperity to my family and me? Here are my answers.

In 2021, 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 Covid pandemic.

The downturn started in 2020 as the coronavirus raged throughout the country. Then in 2021, Americans had access to three vaccines that saved lives and reduced hospitalizations. Omicron is now with us, and experts are saying that in early 2022, 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; just for 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 CEO 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% to 3.4% by year-end. In December, the U.S. added 199,000 jobs, and jobless claims have recently been at their lowest since 1952. Wages were up 0.6% last month, with much of the gains coming from the hospitality sector. I realize that our dealers have struggled to find new employees, economists have several explanations why this is the case, but we all think it will get better in 2022.

Inflation will be 2022’s most significant problem as prices rose 7% in December versus last year. This represents the largest increase since 1982 and is mainly due to the pandemic and supply chain issues. I also believe that companies 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 midyear and will not look like anything that occurred in the ’80s.

With the S&P500 up 27% last year and 401ks at all-time highs, consumers will be out in your stores. Home equity is at levels never seen before, and personal savings are still robust, which means another increase in home remolding. While personal spending on durables had a record year, 2022 will see a return to the services side of our economy as the leisure and hospitality sectors will command a more significant share of the spending.

This all leads me to Gross Domestic Product, which is defined as the number of goods and services we produce in one year. I believe that 2021 will end the year above 5.0%, which will 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 grow over 4%, still a historically strong rate.

Corporate profits increased the most in 70 years, and debt carried by companies on the S&P500 was the lowest since 1980. High profit and low debt are why the stock markets had their best year since the ’90s.

My bottom line is simple, America will see a strong economy in 2022. Still, there will be obstacles, inflation, overcrowding at the ports, uncertainty, shortages will persist, and the markets will be volatile.

Omicron will impact GDP and employment, and the virus will always be the wild card affecting our future.

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. This issue will start to resolve itself as stimulus money dries up and Americans need their paychecks.

Good luck in 2022. This year should return to the life we had before Covid.