2022 Economy predictions: Experts weigh in – Inflation, Real Estate, labor Markets, GDP, Pandemic etc
As we are approaching almost 2 years of living through “unprecedented” times, economists are looking ahead to 2022 with a sense of caution: The uncertain severity of the omicron variant of the coronavirus and sharply escalating prices cast twin shadows over forecasters’ expectations, but some economist’s still found a few reasons to be optimistic even though there are many unknowns.
U.S. economic activity resurged in 2021 after a year marked by lockdowns and stay-in-place orders, with the rebound fueled by a combination of monetary and fiscal stimulus, as well as firm consumer spending.
However, against this backdrop, the second half of this year especially has seen an economy grappling with supply-side constraints and rising price pressures. Lingering virus concerns have compounded with still-elevated demand to push up inflation.
Eric Diton, the president and managing director of The Wealth Alliance, told NBC News “2022 is what I’m going to call a transition towards normalcy, it means the global economy is going to continue to grow but not nearly at the rates that we saw in 2021. It means that inflation will still be stubborn — but going into the latter part of 2022, I think we’re going to solve a lot of those supply chain and employment issues.”
But next year, these pressures will begin to ease, according to a number of top Wall Street economists. A number of pundits have already delivered their forecasts on what to expect in the U.S. economy next year — and most expect to see easing inflation alongside somewhat slow growth in the gross domestic product (GDP).
A recent early December news article from Yahoo Finance, which stated that some of these forecasts were provided before the Omicron variant was discovered in late November, that increased volatility across global markets as investors assessed the extent to which another coronavirus wave might impact economic activity and corporate earnings. Still, the data on the variant’s health risk is still being collected and assessed. So will the pandemic economy rebound in 2022? Here’s what experts predict.
Here are some top predictions and issues economists have on their radar for 2022
Goldman Sachs economists already slashed their forecast for U.S. economic activity in the wake of the discovery of the Omicron variant, suggesting the latest health threat could induce some restrictions and reignite some stay-in-place behaviors seen earlier during the pandemic.
The firm’s updated forecast, delivered on Dec. 4, anticipates GDP will grow 3.8% on a full-year basis in 2022, or down from the 4.2% clip it saw previously.
This year, U.S. GDP grew at a real annualized rate of 6.4% in the first quarter, then 6.7% in the second and 2.1% in the third, based on the latest estimate for the quarter.
A Bank of America economist named Michelle Meyer, told Yahoo, that she sees both GDP growth and inflation decelerating from current levels, but still remaining above pre-virus trends next year.
Stating a rosy outlook, “consider the fundamentals: there is plenty of cash on household and corporate balance sheets, access to inexpensive credit and powerful positive wealth effects,” Meyer said. “The data point to robust labor demand given elevated job openings, an inventory restock after a pandemic fueled depletion, and rapid investment in technology and IP to support productivity growth.”
The NBC News article pointed out The fast-moving omicron variant of Covid-19 is proving to be the biggest near-term wild card. “The early part of 2022 likely will see another temporary slowdown in economic growth as rocketing omicron cases hit the discretionary services sector,” said Ian Shepherdson, chief economist for Pantheon Macroeconomics.
Liz Young, chief investment officer at SoFi, told NBC News “the U.S. is better positioned now than it was a year ago or even when the delta variant triggered a surge in caseloads in the summer and early fall.”
The health care system at this point is pretty well prepared to pivot and create different forms of vaccines and different forms of therapeutics as new variants present themselves,” Young said. As a result, stretches of market volatility that have accompanied each new variant and subsequent surge had become more muted, she noted. “Those reactions keep getting shorter and shorter,” she said. But if the virus was to take an epidemiological turn for the worse, that could change the widely held view in markets that successive Covid waves will continue to have a smaller impact on the economy.
The Housing Market
According to data from the National Association of Realtors, the median price for an existing home rose to just under $354,000 as of November (the most recent month for which data are available), an annual increase of around 14 percent. Economists predict that the prospect of higher interest rates could act as a brake on home price gains next year because paying more to service mortgages leaves homebuyers with less money for payments each month.
Paul Knag is the founder of Ratezip.com said “I believe that a hawkish Fed combined with Omicron uncertainty could bring higher interest rates amid domestic hardship, cooling-off home values and putting pressure on stock and crypto markets in 2022.”
Daryl Fairweather, the chief economist of the online real estate platform Redfin, said in a new report that real estate activity will spike in the first half of the year as buyers and sellers alike scramble to close deals before rates rise.
And while home prices might be cooling, renters aren’t going to get any kind of relief yet. “Rents are increasing at double digits,” said Jay Hatfield, the CEO of Infrastructure Capital Management. Mr Fairweather predicted another year of higher rents, estimating a 7 percent increase nationwide in 2022. According to data from a FHFA’s Division of Research and Statistics report stated that “still, slowing price-growth isn’t the same as falling prices. Homebuyers can expect to pay more and more to buy a home throughout 2022 due to a tight inventory of properties for sale.”
Frederick Warburg Peters, CEO of Warburg Realty thinks that although interest rate hikes will have a psychological impact in dampening any market exuberance. He told a Forbes contributor, that the luxury housing market may behave differently. Even with the Omicron variant on everyone’s mind, foreign money has turned again towards the United States. This will help underpin a market already flush with cash from the huge gains in business and the stock markets throughout 2021. These buyers, always less impacted by mortgage rates than the buyers of more modest properties, will keep this market strong through the foreseeable future, perhaps even showing a little escalation in prices.
It’s hard to say what exactly will happen, Danielle Hale, the chief economist: of Realtor.com, told Forbes that they are predicting “that home sales are expected to increase another 6.6% and home prices to rise another 2.9% on top of 2021 highs.” And a gradual uptick in mortgage rates will make affordability a top consideration for home buyers, especially the 45 million Millennials aged 26 to 35 who are at prime first-time homebuyer age. Demand from these young households will keep the market competitive and fast-paced despite a small uptick in housing inventory as builders continue to ramp up production, increasing single-family starts by 5% in 2022.
The labor Market
It would not be an exaggeration to label 2021 as the year of the worker, and experts said the new year is likely to reflect more of the same — at least at first. David Wagner, a portfolio manager and analyst at Aptus Capital Advisors told NBC News “longer term, I think we’re going to continue to see labor shortages … but in the next year or so it’s going to get better.”
Yet even Federal Reserve Board Chairman Jerome Powell admitted that policymakers were perplexed by the extent to which labor force participation remained depressed this year. In the new year, experts say, the U.S. workforce will come closer to its pre-pandemic norm, but only up to a certain point. Some of the changes triggered by Covid-19 are likely to be, if not permanent, long-term fixtures of the labor market.
Incomes are projected to increase by 3.3% and with many employers looking to attract and retain talent without impacting costs, so experts expect workplace flexibility will continue in 2022.
Ms Young, chief investment officer at SoFi, stated “I think that labor force participation stays below where it was before the pandemic,” citing that early retirement has moved, by many estimates, more than a million workers out of the labor pool. She further explained, “We’re just not going to replace those people, which is something that we’ll just need to expect going into the next year.”
The inflation question is important because it plays a role in so many aspects of the economic landscape: Federal Reserve policy and interest rates paid by borrowers, as well as prices on goods and services bought by individuals, as well as companies.
“I would argue what we’re seeing right now with inflation is a combination of two things. It’s a perfect storm,” said Brad McMillan, the CIO for Commonwealth Financial Network. He went on to further say that high demand for goods triggered by service-sector shutdowns and by the supportive monetary and fiscal policy that was rolled out last year was on a collision course with a global supply chain that had effectively had sand poured into its gears.
Dr. Tenpao Lee, professor emeritus of economics and faculty director at Niagara University, told Yahoo News that “we will have significant inflation in the first half of 2022 until the supply chain issues are resolved and the global economy is restructured.”
The National Institute of Economic and Social Research predicts the inflation rate will fall from its current 5.1% to 2.3% by Q4 of 2022.
The Stock Market
Despite bouts of volatility, 2021 was a gangbusters year for stocks, with equities notching record highs regularly. With the gains all but in the rearview mirror, however, market professionals predict a return to sobriety next year. A big open question is whether, when and to what extent the services sector — which comprises a sizable slice of economic output and jobs — will be able to rebound. Liz Young, chief investment officer at SoFi, told NBC News that “if the services sector has come back … I think the worst of the reaction is already behind us.”
If 2021 was marked by hope for the future, however, experts say investors will use corporate earnings as a window to look into the health of the U.S. consumer and, by extension, the country’s economic growth.