Savannah Chamber

7 1 The National Outlook By Jeffrey M. Humphreys Terry College of Business, University of Georgia www.selig.uga.edu Once effective vaccines became widely available in the second quarter of 2021, the economy settled into sustainable, above-average growth. The Delta variant of the virus kept demand from surging and supply chains from normalizing, but the U.S. economy continued to expand at an above-average pace. In 2021, we estimate that inflation-adjusted GDP increased by 5.5 percent, which substantially exceeds the U.S. economy's long run--1970 to 2020--rate of growth of 2.7 percent. Our 2022 economic outlook calls for above-average GDP growth to continue due to a broadening of the U.S. economic expansion to more fully include even the most severely impacted industries and geographies. That broadening is possible because vaccinations and infections will provide a high level of herd immunity against severe infection and/or death from Covid. High-contact industries such as restaurants, hotels, and live entertainment will be able to operate more fully. Similarly, regional economies highly dependent on travel, hospitality, and tourism will begin to rebound. Consumer and business confidence will be high enough to support above-average economic growth, but sentiment will remain below pre-pandemic levels. In 2022, we expect GDP to increase by 4 percent. (That compares to the 5.5 percent increase estimated for 2021 and the 3.4 percent decline reported for 2020.) Labor market conditions will improve, but the number of jobs will recover more slowly than GDP. On an annual average basis, total nonfarm employment will expand by 2.7 percent compared to the 2.3 percent increase estimated for 2021 and the 5.8 percent decline reported for 2020. The U.S. labor market will fully recover the 22.4 million job lost to the Covid recession in late 2022. At that time, the U.S. economy can be considered fully healed, but it will be a very different economy. Consumer Spending We predict that the consumer to be the main strength of the 2022 economy. On an inflation-adjusted basis, personal consumption expenditures will increase at an above-trend rate of about 5 percent, which will be quite an accomplishment given that inflation-adjusted personal income is expected to decline due to a large drop in federal stimulus payments. The increase in consumer spending will be possible due to a drop in the personal savings rate as well as spending some of the excess savings that accumulated during the pandemic. In 2022, the personal savings rate will decline to less than 7 percent from 13 percent in 2021 and from 16 percent in 2020. The drop in the savings rate amounts to about $1 trillion in extra spending in 2022. As of mid-2021, American households had accumulated about $2.5 trillion (12 percent of GDP) in unanticipated savings, but most of this money probably will be earmarked for retirement or for long-term investments. The demographics of the big savers therefore will spread the spending from accumulated savings over many years. Job growth will power consumer spending. Improving labor market conditions will support growth in wages and salaries and bolster consumer confidence. Compensation per hour will rise by at least 3 percent and the number of hours worked also will rise, which will help to offset the wind down of the federal government's massive stimulus programs. Personal income derived from federal transfer payments will drop sharply, so overall inflation-adjusted personal income will decline even as wage and salary income climbs. Fortunately, growth in consumer credit will contribute to the projected increase in consumer spending. In a repeat of 2021, credit will expand sharply, with non-revolving credit growing much faster than revolving

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