U.S. Economic Outlook
The Conference Board forecasts that U.S. real GDP growth will rise 6% annualized in Q4 2021 versus 2.3% in Q3 2021 with the year-over-year annualized growth at 5.6%. The forecast for the U.S. economy to grow by 3.5% in 2022 was helped greatly by the $17 trillion aid from D.C. over the past several years.
In the fall of 2021, U.S. gross domestic product was up 8% over pre-COVID levels, personal income was at an all-time high, and household net worth was 33% higher, with U.S. consumers having three times the amount of cash as prior to the pandemic.
However, while economic growth looks positive, it is overall down from what we’ve seen in previous years if you look back at averages from 2015 to 2019. The driving factors include inflation, labor shortages, and possibly deglobalization.
Recent bottlenecks in supply chains, elevated demand for goods and services, and higher energy prices all seem to be more persistent than previously thought. Goldman Sachs reported in December 2021 that the U.S. economy will be battling a continued slowdown in 2022, contending with sticky inflation and supply chain. Growth is clearly slowing past its peak rate but is a relatively gradual slowdown right now, though still a significant trend. The group issued a 3.8% GDP growth projection for 2022, citing risks and uncertainty around the emergence of new COVID-19 cases and variants and overall labor shortages.
U.S. Economic Challenges
Top challenges leading to the downgrade of the U.S. economy forecast include inflation, supply challenges and labor shortages, according to Bloomberg.
While we have weathered the end of 2021 fairly well, watch consumer sentiment, as it could be hit hard by the rise of inflation in early 2022. It’s projected that the U.S. Federal Reserve will likely raise policy rates earlier and more frequently than previously anticipated based on the most recent inflation numbers. Persistence of high inflation rates and a recent rebound in hiring are likely to result in the Fed reining in supportive policy more rapidly. We will have to wait and see what the Fed’s going to do.
While retail sales are up and motor vehicle sales climb with evidence of auto production ramping up, there will still be a microchip issue for quite some time. While adapting in some ways, supply chain issues will still be an issue across industries. Finding creative ways to recruit and retain talent and keeping close attention on driving workforce productivity will also remain at the forefront.
At LBMC, with labor shortages and retention of great talent top of mind, we implemented mid-year salary market adjustments, which is something we have not previously done in the past 25 years. While labor prices, wages, and the whole labor value and output equation is still yet to be determined, this proactive move on our end reaped strong benefits.
While there are challenges ahead of us to overcome, we are seeing a resurgence in determination for growth despite all the odds. With proactive attention to innovate and problem solve to reach high growth goals in the new year along with taking a little more control when that escaped us during the pandemic landscape, we are charting a positive path forward.
Economists pare U.S. third-quarter GDP, spending and investment forecasts
Source: Bloomberg monthly survey
Note: Figures are annualized percent changes
U.S. Economic Growth Trends
Key trends driving economic growth in the U.S. include government and consumer spending.
Government spending should grow more rapidly as money associated with the infrastructure package begins to be spent. When you look at the infrastructure package, it’s very clear that the market likes to see spending, but does it really care who’s doing the spending? Whether it’s consumers, business or government, the market likes it when money’s being spent.
The bulk of economic growth will be associated with continued expansion in consumer spending. This is something we saw in 2021 to a degree. It was a safer measure of growth as opposed to capital investment in an uncertain time. That was a real theme of the 2021 data, and it’s held true through this year. We’ve seen it with our clients with the expansion of existing business to focus on reduced capital expenditures.
The U.S. economy is still solidly growing. According to CBS News, consumer spending is up despite inflation. Retail sales beat expectations in 2021; higher prices and the ability to online spend drove some of that. Consumers are spending, but their spending patterns are changing. No longer are they spending on one day like Black Friday. Instead of this big bubble built up where people spend a large amount of money in a short, confined period, we’re seeing that spend is more spread out. A dip in Black Friday is not necessarily the same indication that it once was – when everyone was either going to the stores or not going to the stores. Online shopping and delivery is another example of how COVID has had an impact on our buying landscape.
We are seeing that organizations who are experiencing high growth are investing heavily in productivity by enhancing technology and improving processes as well as creative efforts to recruit and retain top talent.
We continue to see investments focused on process and not current events help long term sustainability in the market.
