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January 3, 2022 Economic Forecast

Gioia: Despite headwinds, U.S. and CT economies in good shape heading into 2022

“The sky is falling, the sky is falling!”

I’ve been hearing this nonsense again, along with the complaint: “I can’t afford to fill up my gas tank.”

Yes, we are in a changed situation from last year with over 5% Consumer Price Index inflation, but much of that is due to a short-term sharp spike in energy costs and another temporary spike in housing costs.

We also have a medium-term spike in shipping costs. The only large sticky inflationary increase is the uptick in wages — and most people are fine with that.

Overall, the economy is in and will be in relatively good shape given the rough conditions brought on by the pandemic.

People who want to work will find that jobs are available and offer better wages. The market has generally stayed strong and resilient, despite the occasional bump, which will help the retirees and one’s dependent on investments.

Inflation has led to a 5%-plus rise in Social Security payout that will help the elderly. Health conditions, while seeing seasonal challenges, will gradually improve as more people including children get vaccinated.

Omicron may cause a further delay in medical recovery, but the pharma giants say they should have a fix within a hundred days.

Gas prices will slowly moderate as more refining capacity comes back online. The U.S. has lots of oil that could be pumped but without refining capacity that does not help.

Peter Gioia

Overall, 2022 won’t be a return to “normal” but will be the most normal we have seen since prior to the pandemic.

I remain cautiously optimistic on U.S. and Connecticut growth throughout the year.

U.S. conditions

As of December, the U.S. was on pace for about 6.4% GDP growth in 2021, which is strong, with unemployment continuing to shrink to 4.2% at the end of November.

Gas prices are high with an over 50% increase compared to the same time last year.

Shipping prices are up with supply chain bottlenecks. But overall, it looks like holiday spending was on track for a good year despite some shortages or higher prices.

Add to that the forthcoming stimulus as the massive infrastructure bill gets implemented. I think the Federal Reserve will be extra cautious as we are far from full employment and the delta and omicron virus variants pose a challenge.

So, don’t expect rapid and multiple interest rate hikes by the Federal Reserve. We may see a few, but they’ll be spread out, quarter-point hikes.

Connecticut and local conditions

Connecticut has done remarkably well weathering the coronavirus. Continuing to positively address the virus remains a key to full recovery.

Recent numbers show 6% unemployment, which has been going down each month for the last 11 months. We see private sector job growth at 3.6% year-over-year.

By the end of 2022 we will likely recover the jobs lost in the virus recession. But more affordable child and elder care are needed to stimulate more female participation in the workforce.

Meanwhile, expect more investment in labor-saving equipment and devices to make up for more of the worker shortage.

International points

Tourism weakness will persist in many countries. This will continue to trouble airlines and cruise lines.

Over time it will be a drag on oil/energy prices.

There are still worries regarding potential conflict. Hot spots of Yemen, North Korea, Ukraine and the Belarus/Polish borders could all end up being real problems, though likely regional in nature.

Certainly, downside risks persist. There could be more problematic coronavirus variants. Supply chain issues could be more stubborn than we think. Foreign oil producers could cut production.

Tensions could flare in the Middle East disrupting the flow of oil. Ukraine could become a hot spot and North Korea could up its saber rattling. Illegal migration could prove difficult both for Europe and in the U.S. at the Mexican border.

But none of these risks are likely to destabilize global or U.S. national growth. Have a happy and healthy 2022!

Peter Gioia is an economic advisor to the Connecticut Society of CPAs and the former longtime economist of the Connecticut Business & Industry Association.

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