The economic forecast for 2022 promises a largely favorable operating environment for businesses of all sizes as the nation benefits from steady growth in goods and services.
Tailwinds include a decline in unemployment numbers, rising wages, a booming housing sector, fat corporate profits, aggressive capital investment and generally easy capital sourcing.
“We are in the midst of an early economic recovery after the body blow of COVID-19,” says Bernard Yaros Jr., assistant director and economist at Moody’s Analytics. “Though growth will decelerate in 2022 due to fading effects from business re-openings and past fiscal stimulus, the economy will remain robust.”
The numbers tell the tale. Moody’s Analytics expects real GDP (gross domestic product) to grow at a healthy 4.3 percent in 2022. While that is a bit less aggressive than the 5.8 percent of the past 12 months, it remains decidedly sunnier than the 3.4 percent pandemic-fueled decline of 2020.
GDP, the total of the nation’s goods and services, is the commonly accepted measure of economic growth. “Real” GDP adjusts for inflation.
Profits grow
Businesses tend to benefit from a healthy economy, and Moody’s Analytics expects corporate profits to increase by some 4 percent in 2022.
While that figure might seem unremarkable in isolation, it represents a hefty advance over the difficult comparisons between 2021 – when profits spiked 36 percent – and 2020, when their profits declined 3 percent.
Headwinds, of course, are inevitable. And 2022 will have its own troubling mix: the peekaboo pandemic. Labor shortages. Crippled supply chains. China tariffs. Nascent inflation. An unsettled consumer.
Yet, economists do not expect negatives to prevail.
“While the Delta variant is continuing to do some damage, we expect this wave of the pandemic to soon subside and for any future waves to be successively less disruptive,” Yaros says. “Labor and goods shortages will ease as the domestic and global economies increasingly learn how to live in a new pandemic normal.”
Furthermore, heftier earnings should help companies weather the coming year’s array of challenges.
“Corporate profit margins have been running somewhat above their five-year average of 11.1 percent,” Yaros says. “That should provide some ability to absorb price pressures that have developed from rising commodity prices and global supply chain issues.”
Sales recover
Business owners tend to confirm the economists’ sunny reports.
“Most of our members have seen a healthy return of revenues and are doing about 90 percent of their pre-COVID business,” says Tom Palisin, executive director of The Manufacturers’ Association, a York, Pennsylvania-based regional employers’ group with more than 370 member companies. “Many have actually gone into hiring mode.”
With its diverse membership in food processing, defense, fabrication and machinery building, Palisin’s association is something of a proxy for American industry.
“Our members are optimistic and expect current levels of demand to continue well into 2022,” Palisin says. “They’re expecting to continue to hire, as well. Our annual wage and salary survey usually projects between 400 and 500 job openings for the coming 12 months. Now, though, the number is more than 1,000. So we’re looking at a doubling of the usual hiring activity.”
Aggressive hiring is improving the nation’s employment level, a key driver of the consumer sentiment so vital to the nation’s overall business health.
“Unemployment has been declining pretty steadily,” says Scott Hoyt, senior director of consumer economics at Moody’s Analytics. “Jobs are being added at a rate that, prior to the pandemic, would be viewed as astoundingly good.”
Unemployment is expected to be as low as 4.5 percent when 2021 figures are finally tallied, and it should decline to 3.4 percent by the end of 2022 – a level not far from the “full employment” conditions of the pre-pandemic economy.