How the US can avoid a recession in 2022
Our financial health in the months ahead will reflect not just the ongoing haggling in Congress and the disruptive computer chip shortages in the auto industry, but also who gets a jab and who doesn’t.
“We have a vaccinated economy and we have (an) unvaccinated economy,” PNC Financial Services Group senior economic adviser Stuart Hoffman said. Hoffman, who chatted with me by phone Monday, is optimistic overall when it comes to economic growth in the U.S. Even so, much continues to depend on vaccination efforts and the opportunity to get on the other side of the pandemic.
Why the U.S. economy could prove healthy
The good news is that the country is likely to avoid a recession in 2022, 2023 and 2024, according to Hoffman’s forecast.
Economic growth can be expected to continue, he said, if Congress can agree on raising the debt ceiling as well as passing a roughly $1 trillion infrastructure package to address the country’s roads, bridges and broadband initiatives and passing a separate compromise bill involving another $2 trillion or more in social policy spending on education, health care, climate and other programs.
“That’s a pretty big stimulus for the U.S. economy and it’s hard to believe the U.S. economy is going to fall into recession,” Hoffman said.
Failing to increase the debt ceiling would be cataclysmic, he said, and trigger a self-inflicted recession.
Unless Congress raises the debt ceiling, the federal government is on course to be unable to cover all of its bills by Oct. 18, according to U.S. Treasury Secretary Janet Yellen.
Ultimately, Hoffman said he expects that the debt ceiling limit will be raised in spite of grandstanding and theatrics in Washington.
“Basically,” he said, “all they’re doing is paying bills that have already been rung up.”
What’s ahead for autos
The pandemic continues to take its toll on manufacturing, transportation and other industries that depend on a healthy workforce showing up on the job site. Serious setbacks in the supply chain could continue to plague the auto industry.
“It may well be that this chip shortage and some of these other transportation bottlenecks don’t clear up until the spring. It could take another six months or so,” Hoffman said. “Obviously, the auto industry seems to be at the center of that problem.”
“We don’t see that causing a recession in the economy, but certainly it has caused a major loss of revenue, sales and jobs.”
Even so, he said, the fundamental demand for new cars, trucks and SUVS once they’re readily available remains very high as more people go back to work.
“We’re building up a tremendous backlog of demand for new cars,” he said.
Three forces relating to the pandemic could come into play that can help the overall economy.
Hoffman highlighted:
h Hope that we’re getting past the worst point in the delta variant uptick in U.S. COVID-19 cases.
h Progress in key steps toward providing COVID-19 vaccines for children ages 5 through 11.
h And optimism that drugmaker Merck is working on a pill that aims to treat COVID-19 and reduce the severity of the virus, including hospitalizations.
Developments on these fronts, he said, could help boost the confidence of customers and those who might be reluctant to return to their jobs in offices, factories, restaurants and elsewhere.
He joked that everyone can’t “phone it in” like economists, journalists and others who are able to do much of their work from home.
“The manufacturing side really can’t phone it in,” he said, noting that people need to physically be at auto plants, semiconductor facilities and harbors.
Vaccination efforts remain essential in addressing labor shortages, too.
If, for example, schoolchildren are vaccinated and less likely to get COVID-19, he said, more mothers may be able to return to the workforce.
“Between vaccinations and treatments, going forward from here, it looks a lot brighter than it did over the last couple of months,” Hoffman said.
“The delta variant really set things back a lot in the reopening of the U.S. economy.”
If many issues continue to clear up, he said, the economy could be fairly strong in 2022 and 2023.
“This is just one big tangled mess between COVID and supply shortages and people going back to work and kids going to school and people getting vaccinated.”
Small businesses see better days
On the plus side, Hoffman pointed to a recent PNC survey of small business owners across the country.
Amazingly, he said, small business owners haven’t been this optimistic about their own company’s outlook in the 18-year history of the semiannual survey.
“That to me does not smell like a recession,” Hoffman said.
Vaccination rates of employees remain of concern. The survey indicated that 48% are requiring employee vaccinations, 44% are providing assistance related to vaccinations, 26% are giving incentives employees to receive vaccinations, and 24% have added restrictions for employees who choose not to be vaccinated.
The survey didn’t ask what exact steps were being taken. In general, though, some companies have offered bonuses for workers who show proof of being vaccinated. As for restrictions, some companies are requiring employees who are not vaccinated to be tested daily or weekly, wear masks, or continue to work from home.
More than four in 10 employers say they are offering increased compensation to retain or attract new employees and allowing more flexible work arrangements.
“They obviously said there are challenges in finding good, quality people,” Hoffman said.
“The cost of doing business is going way up and they’ve had to pass that along to try to preserve their profit margin.”
Labor availability is the most frequently mentioned concern, topping sales and supply chain worries that were reported as more prominent earlier in the year, according to the PNC report.
Even so, Hoffman said, these business owners remain optimistic about the rest of this year and the first half of next year.
“It does show that small businesses, which are very important to the U.S. economy, are handling the challenges of COVID and vaccinations as well as they can.”
No doubt, the supply chain mess must be untangled in order for the auto industry and other major forces in the economy to regain ground. But Hoffman’s words offer far more hope than many might have imagined as the delta variant surged this summer.