The new year got off to a rough start, with the surge in the COVID-19 omicron variant causing disruptions for businesses ranging from hospitals to retailers to airlines. This came on top of ongoing concerns about supply chain bottlenecks and surging inflation. As events continue to shape the economic outlook, let’s examine some of the data that will guide us in monitoring the U.S. economy in 2022.
Following a disappointing 2.3% real GDP growth rate in the third quarter, analysts surveyed by FactSet expect the economy to expand by 5.5% in the fourth quarter. This likely accounts for the unexpected 1.9% contraction in December retail sales, but the slowdown in consumer spending is projected to take a bite out of economic growth in the first quarter of 2022.
According to FactSet Economic Estimates, U.S. real GDP will expand by 3.1% in the first quarter; this projection has been cut significantly from the 4.2% growth forecast of November 30. The economy is expected to grow by 4.0% in 2022, down from the 5.6% growth expected in 2021, but still above the economy’s long-term trend growth rate.
Inflation continues to be a major concern for consumers and businesses alike. The overall consumer price index (CPI) was up 7.0% year over year in December, while the core index (excluding the volatile food and energy components) saw 5.5% year-over-year growth. Meanwhile, the price index for personal consumer expenditures (PCE) was up 5.7% compared to a year ago in November and the core PCE index, the price index closely followed by the Federal Reserve, showed 4.7% year-over-year growth.
The December PCE figures will be released later this week, giving us a complete inflation picture for 2021. With the Federal Open Market Committee (FOMC) also meeting this week, markets will be closely watching the language of the committee’s statement. Most observers expect the Fed to signal rate hikes as soon as March and potentially other monetary policy-tightening measures.
The U.S. unemployment rate has fallen from a peak of 14.7% in April 2020 to 3.9% in December 2021, just above the pre-pandemic low of 3.5%. However, these positive numbers disguise the fact that the U.S. labor force has lost 2.3 million people since its peak at the end of 2019, a 1.4% contraction.
There are various factors at play here. The pandemic has likely led to some permanent departures from the labor market, including older workers who moved up their retirements and those who left for personal/life-change reasons. But the other labor market phenomenon is what is being referred to as the “Great Resignation.” Workers are leaving their jobs in droves in search of better work conditions, higher pay, and more job flexibility. And employers are hiring.
According to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS), the number of quits increased in November to a series high 4.5 million, led by the accommodation and food services industry. Through November, a record 43.1 million workers had quit their jobs in 2021, surpassing the previous high of 42.1 million set in 2019.
The JOLTS release also reported that the number of job openings nationwide has remained above 10 million for the last six months as of November. At the same time, the ratio of unemployed persons to job openings fell to a series low of 0.64, meaning there aren’t enough people to fill all the available positions. It remains to be seen whether or how quickly the tight job market convinces discouraged workers to jump back into the labor force.
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