Uncertainty clouds forecast for U.S., Arkansas economies
Businesses are eager to move beyond the COVID-19 pandemic but it will be a road riddled with several hurdles before any semblance of normalcy returns. That was the consensus offered at the University of Arkansas’ annual Business Forecast Luncheon held in Rogers on Friday (Jan. 28).
More than 800 people registered to attend thw\e event, most of them in person and some, including Juhi Dhawan, a macro strategist with Wellington Management, who shared her international forecast virtually.
Walmart Chief Financial Officer Brent Biggs was the event moderator and echoed the sentiment of many that meeting in person felt good for a change. Biggs also asked the crowd to go easy on the economic forecasters who have an impossible job given the wildcards of inflation, labor force challenges and supply chain disruptions in 2022.
Dhawan said vaccinations will likely “win” the battle over COVID during the year and she expects growth to normalize and inflation and supply chain disruptions to ease. She said there are geopolitical issues to watch as either one could derail the recovery.
“We are watching energy prices and the conflict between Russia and Ukraine,” she said.
Dhawan adds it will be important for the U.S. and Europe to find a secure supply of energy so the world and the U.S., in particular, do not experience a spike in commodity prices. She said the deteriorating relationship between the U.S. and China is a concern.
“In China, the situation has become so opaque and a big concern has to do with the policy that will follow regarding COVID and impacts on the supply chain. It’s impossible to know how this will play out,” she said.
David Altig, director of research at the Federal Reserve Bank of Atlanta, said the path of the U.S. economy continues to depend on the course of the virus, as stated by the Federal Reserve Open Market Committee (FOMC) in its December meeting. He said inflation, as measured by the Personal Consumption Expenditures Price Index, is at high levels not seen since the early 1980s. He said in 2021 prices went up across the board with products and services as federal stimulus money fueled spending demand.
Altig said labor markets are improving relative to the peak of the pandemic but there remains a wide gap between the number of vacancies and the rate of hiring. In November 2021, there were 4.5 million more job vacancies than hires. The shrinking labor force remains a challenge for the U.S. and state economies for the foreseeable future. He said an aging population, declining immigration numbers and the number of women with young children out of the workforce are the major reasons for the shrinking labor force. There is no silver bullet for the ongoing threat to economic expansion, he said.
Altig also spoke on the need for higher wages for hourly U.S. workers who have not kept up with inflation. He said higher wages scaled to inflation could perhaps get some workers off the sidelines. He expects supply chain issues to pressure the flow and prices of goods in 2022. He said prices on 70% of goods in the CPI basket were rising at an annual rate of 3% in 2021, and CPI rates were up 5% for 50% of the goods in the basket.
The word Altig used to describe the charts on inflation was “Yuck!” Even so, Altig said FOMC action to raise rates and tighten money supply should slow demand, giving supplies a chance to catch up. He said 2022 is another transition year with plenty of wildcards to watch. His forecast is for U.S. GDP to grow between 2% and 3% with inflation to moderate between 2% and 3%. He said supply chain issues will be a double-edge story for the next couple of years.
“Once bitten, twice shy, decentralizing manufacturing efforts across the world will likely see reconfiguration of some sort. It will be more costly and perhaps drag on growth over the next couple of years as we see what forces become more dominant,” Altig said.
Mervin Jebaraj, director of the UA Center for Business and Economic Research, discussed the Arkansas economy. He said the state added 27,000 jobs in 2021 and it was the hottest market since 2015 and 2016, but jobs are still 11,000 short of levels before the pandemic. He said a 2.2% GDP growth rate for the state was stellar but challenges to expanding the workforce remain. He said the leisure and hospitality sector needs to regain 8,000 jobs, health care is short 5,000, and school districts need to gain 7,000 jobs to return to pre-pandemic levels.
“This is going to be hard for us to do,” Jebaraj said. “We have seen employees leave small businesses and go to large companies and others start their own businesses. New business applications rose 30% in 2020 and 30% more in 2021. Many of these new businesses are also hiring people from the limited labor pool.”
His forecast is about 20,000 jobs will be added this year in Arkansas and he admits it’s a bit tepid relating to the lingering pandemic and the lack of consumer and business stimulus going forward.
The Little Rock metro added about 4,300 jobs last year but remains 13,000 jobs short of where it was in 2019. Many of government, trade, transportation and utilities, construction, and logging and mining jobs have not returned.
Jeberaj said Northwest Arkansas added 13,000 jobs in 2021 and it was the only region to have more jobs than it did before the pandemic in 2019. He said the leisure and hospitality sector is starting to come back but is still down about 600 jobs since before 2019. He said the other sectors have more jobs added than before the pandemic.
He said the Fort Smith metro added 2,300 jobs in 2021 and that was still 2,000 short of the number prior to the pandemic. Most of the losses were in manufacturing and health care services, both important sectors for the region.
Jonesboro is doing better adding about 1,500 jobs last year, only down about 400 from 2019. Hot Springs added 800 jobs and is down about 1,000 pre-pandemic. Jebaraj said the hospitality and leisure (tourism) sector is coming back but with the Omicron and perhaps future variants it will be a bit longer before the convention business regains momentum. He said the state’s economy is poised to grow modestly in 2022, but not all of the sectors will recover at the same rate.
“Keep your masks handy. We don’t know when the next variant will hit,” he said.