Pollack: COVIDflation

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Co. | Rose Law Group Reporter

We’re ringing in the new year with the same old news from last year and a look at fresh forecasts. Barring any new setbacks, many economists expect the U.S. expansion to continue at an above average rate both this year and next. Really, what we are watching are major impacts to our economy, the responses that they will receive, and how that will impact everyone. Namely, COVID-19 and inflation.

The Omicron variant has taken over as the dominant variant that the global public is contracting. It has proven to be more contagious than previous versions of the virus but also general perceptions are that it causes milder disease. Still, as with any disease, there are risks to the public health, especially those more vulnerable to the effects of the virus. It is impacting every aspect of our lives and causing disruptions everywhere including productivity in the workplace, education, supply chains, childcare, and the list goes on. Vaccination efforts here in the U.S. and across the globe, especially to disadvantaged populations, must continue in order to minimize these disruptions and lessen the harm of disease for a virus that is likely here to stay in some form.

Inflation hit a new level in the latest uptick that has now persisted for several months. We have witnessed price increases across the board, with minimal relief in only a few categories based on the latest release. Expectations are that it will likely continue to remain at an elevated through 2022. This has garnered the attention of the Fed which has pivoted from encouraging full employment to curtailing inflation pressure. We expect this to be the most reoccurring topic of discussion and debate this year. How far should the Fed go in raising interest rates and how quickly? Will it disrupt the continuation of expected growth? Will supply chain solutions eliminate the need or magnitude of Fed actions? Time will tell.

U.S. Snapshot:

  • New forecasts from the Blue Chip Economic Indicators panel were released for 2022 including their first forecast for 2023. The consensus forecasted GDP growth at 3.9% in 2022 and 2.6% in 2023. Both years remain above the GDP growth seen last decade. The panel’s main economic concerns remained the same – inflation and COVID-19. Both surged in December. Despite the recent surge in both, the U.S. economy has been able to maintain steady growth. Monetary tightening is likely to occur sooner than previously expected.
  • Consumer sentiment declined in the first half of January. Escalating inflation and Omicron variant contributed to the downward shift.
  • The consumer price index increased 7.0% from a year ago and remains at its highest level since 1982. Core inflation also increased by 5.5%, which was the largest annual increase since 1991.
  • Industrial production dropped 0.1% in December. This was surprising as expectations were for a 0.2% increase from November’s level. As COVID-19 cases continue to climb and workers have to take time off, look for industrial production to be further impacted in January.

Arizona Snapshot:

  • The Information Market released their data for Maricopa County. During 2021, total sales increased 10.2%, reaching nearly 130,000. New build sales declined 3.2% from 2020, while the number of resales increased by 12.9%. Year-over-year, the median sales prices increased 17.1% for new home sales and 28.4% for resales.
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January 2022