By Jeffry Bartash
Omicron has disrupted U.S. supply chains and the ability to hire. Labor is so hard to find that wages are rising at the fastest clip in decades. A global computer chip shortage that curtailed auto production also shows little sign of going away. And Chinese factories that ship lots of imports to the U.S. are facing renewed shutdowns as the nation tries to prevent another major viral outbreak.
That could spell big trouble.
“Last year, a major port in China was forced to close for weeks, setting off a global supply chain disruption that took months to recover from,” said chief economist Stephen Stanley of Amherst Pierpont Securities. “If that experience is repeated, the hopes of an unraveling of supply chain knots in 2022 may prove overly optimistic.”
Most economists expect inflation to stay above 3% in 2022 — well above the Fed’s 2% target. Some warn it could end up even higher.
Are consumers turning bashful?
Consumer spending soared in 2021 as the economy reopened and coronavirus cases briefly nosedived after the first few rounds of vaccinations.
Outlays rose 13.5% through the 12 months ended in November, the latest data available. That’s three to four times the usual annual increase.
No one expects a repeat in 2022, especially after the end of government stimulus payments to consumers. Yet most economists still think households will spend enough to keep the U.S. growing at an above-average pace of around 4%.
The case for spending?
Wages are rising rapidly. Most people feel secure in their jobs. Home values and stock portfolios have surged. And many households saved a lot of money during the pandemic. They eschewed normal expenses such as commuting costs or banked some of their government stimulus funds.
Economists estimate consumers are sitting on more than $2 trillion in excess savings.
On the flip side, high inflation could make many consumers reconsider their spending plans. Inflation is rising much faster than wages.
What’s more, higher interest rates could retard sales of homes, autos and other big-ticket items.
Households are also adding debt again in part, some say, because everything has gotten more expensive.
“The more likely story is that [consumer demand] is fading even more quickly than even we had anticipated,” U.S. economist Alex Pelle of Mizuho told clients in a note.
It’s a big deal whichever way consumers go. They drive almost three-fourths of U.S. economic activity.