COLORADO SPRINGS – As the pandemic drags on, economists are warily assessing the possibilities of the year ahead – and wondering if 2022 might be the most difficult stretch yet.
“It’s counterintuitive,” Tatiana Bailey, PhD and director of the UCCS Economic Forum said. “I’d say 2022 probably is going to have more headwinds than the last couple of years.”
Bailey says a combination of factors brought her to this conclusion— a lack of the financial support that was made available in 2020 and 2021, as well as pandemic-caused labor shortages and supply chain issues across the globe.
“I think the biggest thing is we’re not going to have the federal stimulus payments that we had in the first two years of the pandemic. That alongside the fact the federal reserve is going to have to raise interest rates because of inflation,” Bailey said.
It comes after robust growth during 2021. Bailey says most projections peg the United States economy growing at a rate of 5.5%, double the pre-pandemic rate that seldom broke 2.5%.
Right now, many nations that ship the United States its goods are either dealing with low vaccination rates or COVID-19 outbreaks.
In China, it’s both— outbreaks of the Omicron variant and a vaccine that’s far less effective than the Pfizer and Moderna versions are complicating the nation’s availability to keep workplaces open.
“Now we’re looking at prolonging those supply chain disruptions which some experts were saying were starting to abate,” Bailey said.
And, as inflation hit a 40-year high of 7%, real wages (wages versus the cost of goods) dropped 2.4%.
But the issue of real wages struggling to keep up with the cost of living pre-dates the pandemic, Bailey says.
She reports there are 6 million more people filing for unemployment as compared to pre-pandemic times – there are 6 million people who could work but are not actively seeking work, so they’re not counted in the unemployment rate. And another 3 million people missed work due to a pandemic-related issue during the month of December.
That labor shortage gives workers leverage to negotiate for higher wages and, Bailey says, they’re more likely right now to come out on top.
Still, higher wages are what economists fear could jumpstart a wage-price spiral—prices increase, workers ask for higher wages, higher wages drive up prices, workers ask for high wages, etc.
“To me, that’s one of the reasons that wage-price spiral is going to continue,” Bailey said, “For those workers who do come back, they’re in a bargaining position where they can ask for more money.”
Ultimately, Bailey says, the pandemic itself will play the greatest role on whether the economy will widen or wither in the year ahead.