Pollack: New year brings hope, headwinds

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

At the beginning of each new year, people look forward with the hopes for a better life. New year’s resolutions are made (and often forgotten), but the new year brings a new outlook for many Americans. Here in Arizona, there is reason for a positive outlook. Our state has been one of the leaders in economic growth and that trend should continue. According to the U.S. Census, Arizona was third in population growth in 2021 behind only Florida and Texas. Based on our review of a number of forecasts, Greater Phoenix employment should grow somewhere between 3.7% and 5.3% in 2022 which could mean at least 80,000 new jobs. The state has also made tremendous progress in diversifying our economy including leading the country in both the semiconductor industry and biosciences.

Despite these advancements, there are still risks and headwinds that the country will face. Those include the following:

COVID-19 (of course): Whether you believe in vaccinations or not, there is clear evidence that they are safe and continue to be highly effective in preventing deaths and severe symptoms. Despite break-through cases, those who have been fully vaccinated are reported to have a quicker recovery. They help keep people out of the hospital and have resulted in much fewer deaths.

Another impact of the virus and largely the unvaccinated is on medical providers. During surges, hospitals can become overwhelmed, sometimes forcing them to restrict other important therapies and surgeries. Nurses and other hospital workers are so burned out and there is now a shortage of nurses across the country including here in Arizona.

The impact of the Omicron variant is also hitting the airline industry with thousands of cancelled flights. Whether this is truly due to the sickness of employees or workers who are just burned out is unknown. But these are real economic impacts that will once again threaten the viability of the airline industry.

Vaccines are alleviating those industries that are heavily impacted by shortening the time and severity of the illness as well as easing the concerns of workers and consumers. They are providing a path to COVID-19 and its variants becoming an endemic and returning to something resembling normality or a “new normal”. Our hope is that there will be continued acceptance and adoption of vaccines so that it can reach a critical mass of the population and achieve its greatest potential effectiveness.

Supply-chain logjams and labor shortages: Shortages of materials and goods will likely be with us throughout 2022. An estimated ten million jobs are going unfilled in the country. Nationally, the labor participation rate has still not returned to pre-pandemic levels. People are staying out of the workforce for reasons that are not entirely known. We do know that the pandemic has changed the way people view work and their careers. The work-from-home model or some hybrid will probably be with us to some extent for the long term.

Inflation: An outgrowth of supply-chain constraints and labor shortages is inflation. We will likely see above-average inflation rates throughout this year but ultimately moderating thereafter. We expect Fed actions this year will focus on curbing inflation pressure.

Once again, despite these headwinds facing the country, Arizona and Greater Phoenix should weather the storm much better than almost every other state in the nation.

U.S. Snapshot:

  • Employment ended the year on a down note by only adding 199,000 jobs in December. New employment in 2021 totaled 6.4 million jobs. All sectors grew in 2021. Leisure & Hospitality had the highest number of jobs created, with 2.6 million. The unemployment rate also declined from 6.7% a year ago to 3.9%.
  • The U.S. economy has recovered 84% of the jobs lost during the pandemic. Through December, an estimated 18.8 million jobs have been recovered, with Leisure & Hospitality and Trade, Transportation, & Utilities accounting for 10.3 million. Only the Financial Activities sector has recovered all of the jobs they lost.
  • November data from the Job Openings and Labor Turnover report showed that demand for workers remained high, with 10.6 million job openings. The number did decline 4.8% from October but remains well above the levels seen last year. A record 4.5 million workers quit their jobs in November, signaling confidence in the job market.
  • The Leading Economic Index had a sharp increase of 1.1% percent in November, following a 0.9% increase in October and 0.3% increase in September. Continued momentum points to an ongoing economic expansion in the first half of 2022 despite persistent supply issues and shortages in the job market.
  • Personal consumption expenditures increased 0.6% in November, outpacing 0.4% growth in personal income. The personal savings rate decline from 7.1% to 6.9% in November.
  • Both consumer confidence measures ticked up in December. The Consumer Confidence Index was up 33% for the year and up 3.5% for the month. The Sentiment Index improved 4.7% but was well below the level of 2020.
  • ISM’s manufacturing PMI declined to 58.7%. December’s level was down 3.9% from last month and 3.0% from a year ago. The Services PMI declined from the record level of 69.1% seen in November to 62.0% in December. Both indices remain well above the 50% threshold that signals expansion.
  • Total existing home sales were down 2.0% from a year ago. The median sales price was up 13.9% during the same time.

Arizona Snapshot:

  • The Arizona Office of Economic Opportunity released their population for 2021. The state as a whole grew at 1.5% or added 108,969 people. Greater Phoenix added 81,623 people and Greater Tucson added 12,729.
  • RLBrownReports.com released their November data for Greater Phoenix and Greater Tucson.
  • Greater Phoenix’s permits for the month were down from a year ago but remain at a high level and are expected to surpass 30,000 permits for the year.
  • Greater Tucson Resales and New Home sales were up for the year despite a double digit increase in the median sales price.
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