There are great expectations for the U.S. economy in 2022, as recovery from the COVID-19 pandemic is expected to gain momentum – albeit slowly. Here, Ken Louie, Ph.D., director of the Economic Research Institute of Erie (ERIE) and associate professor of economics at Penn State Erie, the Behrend College, talks about growth estimates, as well as the statistics and trends that are expected to impact the economic outlook for 2022.
The Delta variant of COVID-19 appeared to temper economic growth this summer, but economists seem to believe recovery will continue into the new year. How would you describe the outlook for the U.S. economy as we begin 2022?
We have been gradually recovering from the pandemic, despite the Delta variant. The pandemic-induced recession last year lasted only two months, and the outlook for the U.S. economy is continued growth and expansion as we head into 2022. Of course, the pace of growth will depend on many factors that we do not know with certainty, such as the future course of the Delta variant.
Many economists have lowered their growth forecasts citing COVID variants, inflation and supply chain issues. What does your research show?
These events are all potential “headwinds” that could slow the pace of the economic recovery. The latest median projection (in September) by the Federal Reserve Board and Federal Reserve Bank presidents is for U.S. real GDP to grow by only 3.8 percent in 2022. However, even the Fed’s 3.8-percent growth rate projection is quite good, since the U.S economy has not grown by more than 3 percent on an annual basis since 2005.
How does the regional economic outlook compare with the state and nation?
The Erie regional economy has faced slightly more difficult economic challenges in 2021, and this may continue into 2022. For example, consumer expenditures, which may be one indicator of future economic activity, is estimated to have fallen by 9.5 percent in Erie between January 2020 and September 2021. In contrast, during the same period, consumer expenditures increased by 26.2 percent in Pennsylvania and by 19.9 percent in the nation as a whole. The low rate of consumer spending in Erie may, in turn, be one factor restraining the growth in the local economy.
The Federal Reserve also projects the economy to improve next year. What is your assessment of the employment rate? What are you seeing at the local level?
The good news is that we are continuing to recover many of the jobs lost due to the pandemic. However, Erie’s job recovery rate remains lower than that in the state and nation. As of August 2021, Erie has recovered only 64 percent of the jobs lost during the early months of the pandemic, while Pennsylvania has recovered 69 percent and the United States has recovered 78 percent. Although it has fallen substantially from a year ago, Erie’s seasonally adjusted unemployment rate of 7.0 percent in September is still higher than that in the state (6.2 percent in September) and nation (4.6 percent in October).
COVID-19 continues to impact the business sector in new ways, the majority in regards to hiring, inflation and supply chain issues. Which sectors are rebounding better than others?
Erie’s leisure and hospitality sector has rebounded better than most other sectors. As of September 2021, employment in this sector is back at the pre-pandemic level. Other sectors in the local economy that are back at pre-pandemic employment levels or higher include mining, logging and construction; transportation, warehousing and utilities; and financial activities. The retail trade sector in Erie has also rebounded quite well, recovering 89 percent of the jobs lost in early 2020. Although Erie’s manufacturing sector added 400 jobs between January and August of 2021, it has only recovered 44 percent of the jobs lost during the pandemic. Employment in the local education and health services sector is almost 2,000 below its pre-pandemic level.
Last year, most CEOs agreed that the worst of the pandemic was behind us. But much of that has changed with vaccination mandates and many people not returning to the workforce. How critical are these variables to our economic recovery?
The most important factor that will influence the speed of our economic recovery is getting the pandemic under control. Therefore, any actions that will reduce the risk of infection and the spread of COVID will be very helpful. At the same time, due to the substantial workplace challenges faced by many workers, it is possible that the dynamics of the labor market may be shifting. Some workers who have lost their jobs may use this as an opportunity to search longer to find a job with higher pay or better work conditions or that will accommodate their child-care needs, whereas other workers may drop out of the labor force permanently. These shifts in the labor market also will influence our economic recovery.
What key areas/current issues should we be keeping our eyes on when it comes to the economic forecast for 2022?
In addition to the overall pace of job recovery, some of the current issues and events that we should watch include the impact of the infrastructure bill that has just been passed and the other spending proposals that are still being negotiated by Congressand the president; the Fed’s monetary policy stance; the ongoing supply chain disruptions that may, in turn, affect the course of inflation; the degree to which the labor shortages in some sectors will be resolved; and the effectiveness of vaccine mandates or other measures to prevent another surge in COVID or a variant in the United States or other parts of the world. How these key issues play out in the upcoming months will likely affect our economy in 2022.
To register for the MBA’s in-person and virtual Economic Outlook IMPACT luncheon on December 9, visit mbausa.org.