You can probably forecast winning at Monopoly if you are able to buy Park Place and Boardwalk early in the game. If you have the cash and can build hotels, before long, the other players who land on your expensive properties will be paying you big bucks.
I wish forecasting the economy was as simple as owning Park Place and Boardwalk. However, whenever I dive into economic articles and see a bunch of graphs and tiny print, my eyes get tired. Mainly it’s because the discussion often goes too far into the weeds. That said, as a credit and collection professional, it’s still important for me to get my arms around how our economy is headed in the short and medium term.
So, after reading through Moody’s, Bloomberg, S&P, Goldman Sachs, Brookings, and a few other forecasts published by leading economic organizations, let me try to give you a layman’s understanding of where I think we’re headed in 2022.
First the good news:
- The labor market continues to improve with the unemployment rate down to 4.2%, compared to 14.8% in the earliest days of the pandemic. The Federal Reserve Chairman Jerome Powell told Congress in December that officials expect the unemployment rate to fall further to 3.5% by the end of 2022. This was the rate back in February of 2020 just prior to the pandemic getting started.
- Consumer demand will remain strong with wallets and bank accounts continuing to hold up with pandemic payouts. The big surprise of this situation is that as consumers in 2021 spent enthusiastically and businesses struggled to keep up with surges in demand, the global supply chains buckled under the pressure.
- Wages and housing prices are rising and in some areas of the country, there are pockets of real estate price bubbles.
- The number of job openings stands at 11 million, just shy of its record, and the ratio of unemployed workers (6.6 million) to openings was 0.6 in November, the lowest level since the government started measuring the figure back in 2000.
- Despite all political and economic uncertainties, the stock market is forecasted to still stay strong.
- Industrial production increased 0.5% in November after a 1.7% gain in October, in which motor vehicle assemblies rose to a 9.35 million annual rate, the highest since May 2021. This could possibly be a sign that supply chain issues are starting to ease up.
- Fortunate 500 Company CFOs have indicated that they will increase their capital spending, hiring and employee compensation.
- GDP growth in 2022 is expected to be between anywhere between 2-4%.
Now, the not so good news:
- Omicron is highly transmissible, although those who become infected so far appear to be suffering mainly mild symptoms. How people react to increasing caseloads – and how communities and states try to mitigate not only Omicron’s harm, but other future variants as well, could have a negative impact on the economy.
- The Fed is intending to raise interest rates to cool off inflation. The concern is that as the Fed tries to gently cool down the economy, it could cause some borrowing hardships.
- It appears that the hold on the $1.8 trillion Build Back Better plan means the loss of an economic stimulus. For example, the expiration of the childcare tax credit and other various social and tax programs that support the economic well-being of some Americans to fully participate in the economy, could actually impact consumer spending. Because this legislation is still on hold, Goldman Sachs economists have pared down their 2022 first-quarter growth estimate from 3% to 2%.
- The combination of strong consumer demand, low unemployment and a high number of open jobs has resulted in consumer inflation rising to an annual rate of 6.8% in November.
In the end, 2022 may come down to a clash between the American consumer, a virus that continues to outfox our experts, and the central banks that are struggling to keep a lid on price increases. And of course, how will all of this unpredictability affect our credit decisions? As credit professionals, we’ll continue to anticipate how certain economic changes will impact our customers and tighten or loosen credit accordingly.
Your questions and comments are most welcome (nseiverd@cmiweb.com).
Nancy Seiverd, President, CMI Credit Mediators, Inc.
