Any tight labor market is likely to spark wage hikes – yet another driver of positive consumer sentiment. Today’s economy is no exception.
“We have seen a significant increase in wages over the past year – as high as 20 percent to 25 percent for lower hourly entry-level employees or machine operators,” Palisin says.
Nationwide, increases are running lower, due to normalization of wages in some industries.
“In 2022 we’re looking at 2.6 percent growth in the employment cost index, compared with 2.9 percent for 2021 and 2.6 percent in 2020,” Hoyt says.
Economists consider the employment cost index as the best measure of actual wage rates. According to Hoyt, “any risks to the accuracy of those numbers is probably on the upside.”
Wage rates aren’t the only component of an employer’s labor cost. Toss into the mix a greater number of people employed, a greater number of job positions filled and an increased number of hours worked, and the total comes to what economists dub “wage and salary income.” And it’s clear that employers nationwide will be shelling out more of that in the coming 12 months.
“In 2022, we’re looking at about 4.6 percent growth in wage and salary income, coming off a 7 percent increase in 2021, which was up from the 1.3 percent of 2020,” Hoyt says.
All of that additional income should encourage greater consumer spending, a key driver of a healthy economy. And signs are showing that people saved up considerable sums of cash that are ready to be spent.
Throughout 2020 and early 2021, after-tax income rose much faster than what was anticipated prior to the pandemic. The reason was massive fiscal stimulus in terms of federal economic impact checks and expanded unemployment insurance payments.
At the same time, consumer spending ran lower than anticipated.
“People now have a huge amount of savings,” Hoyt says. “Furthermore, consumer credit card borrowing has been weak, leaving consumers more flexibility to borrow money going forward if they choose to.”
Construction activity
Given healthy corporate growth, it’s little wonder business investment remains robust.
“Our members, in general, are expanding, building new warehouses and manufacturing facilities and buying new equipment,” Palisin says. “We are seeing a special uptick in the automation category because of the labor supply issue.”
Nationwide, the picture is the same. Moody’s Analytics expects capital investment to increase 8.2 percent for both 2021 and 2022, another welcome rebound from the 5.4 percent decline of 2020.
Companies are giving a lot of attention to bolstering their intellectual property infrastructure.
“Investments in information processing equipment and software [are] well above [their] pre-pandemic level as businesses have boosted their IT budgets,” Yaros says.
Higher energy prices also fueled aggressive investments in mining exploration, shafts and well structures.
The economy should also benefit from more spending on commercial structures.
“We’re going to see more nonresidential construction next year,” says Bill Conerly, principal of his own consulting firm in Lake Oswego, Oregon. “It will be strongest probably in warehouses and light industrial, but also suburban offices. Early indicators, like the Architectural Billings Index, are looking positive.”
This will be a welcome change over recent flat activity, which Conerly attributes to the long lead times characteristic of such projects, and a scarcity of new initiatives in the early days of the pandemic.
“Early in 2020 nobody was signing papers to acquire land or do new projects,” he says. “So what we see going on now are projects that were planned pre-pandemic or with short lead times.”
Ready money is fueling the trend.
“For the most part our companies are able to access funds for hard capital investments and lines of credit,” Palisin says. “Financing has loosened up since a year ago when everybody was in a high state of uncertainty.”
On the residential side, housing starts have been running about 15 percent higher than pre-pandemic levels, according to Moody’s Analytics. The prediction is for full steam ahead.
“Annual growth in housing starts will remain strong because of favorable demand-side factors, namely, demographics and excess savings,” Yaros says.
Increases for 2022 are expected to top 11.9 percent – very aggressive by historical standards and slightly higher than the previous year’s 10.6 percent.
Eager consumers are bidding up the prices of single-family homes, and a general easing of mortgage lending standards is helping grease the skids. Housing prices for 2021 are expected to jump 17.5 percent – a considerable improvement over the previous year’s 10.4 percent.
As for 2022, Moody’s Analytics expects increases to decelerate to 4.6 percent due to difficult year-to-year comparisons.
Scarce workers
The generally favorable economic forecast is not without its clouds.
As most employers will attest, today’s ambitious hiring initiatives are colliding with a scarcity of candidates.
“Our members are having difficulty finding enough workers, especially for entry-level jobs,” Palisin says. “The average time to hire has doubled from what it was prior to the pandemic. This will certainly impact our members’ ability to take on new work or provide on-time delivery.”
Nationwide job openings recently topped a record-shattering 11 million – a huge increase over the 7 million pre-pandemic level.
“The No. 1 concern of businesses going forward will be finding qualified labor,” Yaros says. “There have never been so many open positions across every industry and government, but the need for more workers is especially acute in manufacturing, transportation, educational services, health care, and leisure and hospitality.”
The reasons for the scarcity are fairly diverse.
“There has been a significant drop-off in labor force participation as folks were forced into retirement or are staying home to deal with child care or other dependent care issues that are more difficult to handle in the current environment,” Hoyt says.
Some fear the risk of workplace infections. Others are not finding exactly the job they want. And many pandemic-shocked people are reassessing their life missions and pursuing new ventures.
A number of factors may help relieve the labor crisis in 2022. These include the end of bonus unemployment insurance, a declining effect from stimulus payments, an abatement of infections and a return to in-person schooling.