On the Path

By: Dr. M. Ray Perryman
Published in syndication February 16, 2022

The US economy continues to recover from the pandemic. Even in the midst of challenges both domestically and internationally, our latest projections call for expansion over the next five years. Here's an overview of some key patterns influencing the outlook.

The decline of the Omicron surge offers hope that the future path of the virus will be more manageable. As restrictions are relaxed, restaurants, bars, and entertainment venues, as well as the travel and tourism industries are seeing increased activity and profitability. Air passengers and cargo volumes are up, and industry executives are expecting far better results this year than last. As long as future spikes in serious cases remain more muted, the pandemic's negative impact on the economy will diminish over time, although vestiges will remain for generations.

Another current concern is inflation. As I've previously discussed, much of the problem is transitory. Consumers are looking to spend even as the supply chain remains snarled, and prices are escalating. We're also seeing more lasting inflationary pressures resulting from the massive deficit spending during the pandemic. The Federal Reserve has begun taking action to slow things down, and the question is whether it can be accomplished without excessive strain on growth. I, for one, believe that it can.

Supply chain issues are proving to be difficult to work through. During the pandemic, inventories were depleted throughout the production chain due to work stoppages, logistics interruptions, and other issues. Strong consumer spending also has retailers replenishing stock. The result is an overload of goods to move around. Maritime freight prices have soared, ports are overloaded, and there aren't enough truck drivers to go around. It's like a huge global traffic jam that will take some time to untangle. The longer the process takes, the more it will dampen economic growth (but progress is happening).

Labor shortages in some industries and areas are causing further difficulties and pushing up wages (good for workers, but also inflationary). An escalation in Russia-Ukraine or other hotspots around the globe could increase uncertainty and dampen performance. Washington remains so gridlocked that it's difficult to get anything done.

I think we'll work through (or around) most of these problems over the next few years. As a result, we're projecting growth to be relatively strong (though starting from a still somewhat diminished base due to the pandemic). We're forecasting total gains of about 17.0 million net new jobs over the next five years, with real gross product increasing at a 3.41% annual pace through 2026. Much of this expansion is front loaded in the next couple of years.

The path will almost certainly be bumpy, but the trend for the US economy should be decidedly upward. Stay safe!