What's ahead for the economy in 2022?
We've seen the pandemic turn conventional economic thinking upside down in the past couple of years.
But will that continue?
Today, On Point: From the macro to the micro, our Money Ladies Rana Foroohar and Michelle Singletary are back with their analysis of what's to come in 2022.
Michelle Singletary, personal finance columnist for the Washington Post. Author of "The 21 Day Financial Fast." Her column "The Color of Money" is syndicated in newspapers across the country. (@SingletaryM)
On the economic reality for Americans
Michelle Singletary: “The pandemic just sort of ripped off that Band-Aid, and just showed this sore that still wasn't healing. ... We've talked about this quite a bit: the haves and the have-nots. And Rana just talked about that. Those who have money in the market — their 401k ... investing, they've got to sell a house. They did fantastic over the last two years. While so many people are struggling, losing their jobs, not sure how to keep a roof over their heads.
"So when inflation takes up, now people who had took on a lot of debt, maybe they got an arm for their mortgage to kind of maybe afford that house more. If that arm is going to be readjusting, it's out of that introductory period where it stays the same. Then they're going to see increases in that. If you borrowed on your home for the home equity line of credit, you're going to see that variable rate going up.
"And so people who were living on debt, and basically increasing their lifestyle on their debt, are going to feel that pain. Those that were already struggling, they're throwing their hands up, like, what else can you do to me? I'm really still suffering.
"And then savers who've been waiting, actually, for the Fed rate to go up thinking, Yeah, I'm going to get more of that money in my savings account. Probably not. Maybe you'll get two more dollars this year than you did last year for that money. And that's why I sort of try to encourage people that you do need to invest and figure out some ways to grow that savings. You just can't keep it in a bank account."
On the big picture for average American savers
Rana Foroohar: “I had a conversation recently with Heather Boushey, who's on the president's Economic Advisory Council. And she made an interesting point. She said we used to look at GDP as a measure, the rate of growth in the economy. Which is usually about 3% on trend in the U.S. — it's been lower and higher in recent years — as a measure of how everyone was doing.
"But from the late 70s onward, that started to diverge. So we have a lot of different economies in America. Now we don't just have a 3% economy, we have a 6% economy, we have a 1% economy. I think depending on where you live, you're going to feel all these different dynamics of asset price inflation, wage inflation very differently in the coming year.”
On what’s next for inflation in the U.S.
Rana Foroohar: “I don't think that you're going to see a real wholesale decline in inflation. But I think you're going to see some volatility, and I'll tell you why. There's sort of two or three key factors pushing inflation, and there's one deflationary factor. Let me explain. Supply chain issues, I mean, we've all heard about these by now, the big delays at ports in L.A., the fact that in the midst of the pandemic, you had most of the masks coming in from China. Suddenly, China wants to keep all its masks. You can't get things here, and so on and so forth.
"And so all of that has combined to create a situation in which over 90% of companies in a recent McKinsey study are saying, You know what? We want to change our supply chains. We want to do more locally and regionally. That's ultimately actually maybe a good thing for jobs, but it's going to increase some inflation in the short term. Those bottlenecks are going to take a while to work out.
"At the same time, you have rising wages. Again, that's kind of good for a lot of people, too. It's about time we all had a pay raise. But it's harder for companies, makes it tougher for them to keep prices down. So all of this is part of this really major transition in our economy that's going to take three years, five years, 10 years to work itself out.
"Now there's one big deflationary factor, though, which is technology. Think about, for example, what happened at restaurants during the pandemic. I was traveling even during the pandemic to a certain extent. And you started to see in airports, there were no more servers. There were these sort of kiosks. That’s just one tiny example.”
On a solution to make the economy work for all Americans
Rana Foroohar: “I think there are creative solutions. It's kind of fascinating that the co-housing trend, I think, is big, not just among young people. My daughter is going to be living with many people when she graduates. But also intergenerationally, and among older people. I think that's going to become a big trend.
"I also think policy-wise, the Biden administration can and should be trying to salvage some of Build Back Better by saying, All right, if we can't keep the child care subsidy for everybody, let's keep it for those at the bottom 25% that really need it the most. But you said what could bring the country together? I have an idea: A year of service. I look around, there are countries, Israel would be one example. Where rich or poor, you have to do a year of service.
"Now, in that case, it's military. Wouldn't have to be. You could do something around education. You could do something around eldercare, around child care. But I think we need something in this country that you cannot buy your way into or out of, that everybody has to do together in order to get some [cross-pollination] between different groups geographically, politically. We need some kind of sense of shared commitment and sacrifice in this country. And so that's something I've been thinking about as a possible solution.”
From The Reading List
Financial Times: "Why we should expect wobbling in global inflation dynamics " — "Modelling on data of past 50 years may be hard with a ‘bullwhip’ economy."
Washington Post: "Financial regulator takes aim at ‘buy now, pay later’ credit" — "My grandmother Big Mama used layaway to purchase our Christmas presents."
This program aired on January 4, 2022.