The primary two quarters of 2022 started with adverse progress within the gross home product. It appeared as if we had been headed right into a recession. The Fed needed to tame inflation that was getting uncontrolled, so it raised the goal Fed funds fee from 0.25% in March to 4.5% now. Within the face of those larger rates of interest, rising debt ranges worldwide stemming from insurance policies to climate the pandemic put extreme constraints on fiscal coverage. Within the U.S., federal debt held by the general public was $24 trillion within the third quarter of 2022, which amounted to 95% of GDP, up from 80% earlier than the pandemic. China’s zero-Covid coverage continued to place a drag on international provide chains. Russia’s struggle on Ukraine created international nervousness and rising oil and meals costs.
You would be forgiven for considering that 2022 was an terrible yr for the economic system. However it may have been an absolute catastrophe. What saved the day was the job market. Because of this, the financial ache has been extra tolerable to extra individuals — as a result of they proceed to have paychecks — and the general financial image on the finish of the yr is much much less dire than many anticipated.
In December 2021, the unemployment fee was at 3.9%, reflecting a tremendous restoration from 14.7% on the peak of the pandemic — nevertheless it continued to fall to three.7% by October. General, extra individuals had been being employed throughout 2022. At first of the pandemic, 80.5% of the inhabitants ages 25 to 54 had been employed. That dipped to 69.6% on the finish of lockdowns, nevertheless it had recovered to 79% on the finish of 2021 and continued to rise to 79.7% in November.
Extra superb nonetheless, the economic system in 2022 was particularly favorable to low-wage employees. From the third quarter of 2021 to the third quarter of 2022, the lowest-wage employees on common skilled a 9% rise in wages, whereas the highest-wage employee skilled solely a 5% rise (not even sufficient to maintain up with the 8% inflation). This development reversed many years of rising earnings inequality.
Low-wage employees benefited probably the most from the restoration as a result of corporations needed to compete with authorities help applications to entice employees to re-enter the labor market. It is usually potential that a few of the new expertise, comparable to digital instruments to facilitate service-oriented interactions, like utilizing apps to pay for meals, boosted the productiveness of low-skilled employees. This may be an necessary reversal of the development of IT innovation being directed at enhancing the productiveness of high-skilled employees, comparable to with computer systems.
The famous person tech corporations, comparable to Google, Fb, Amazon, Apple and Microsoft, had been additionally not behind the energy of the job market in 2022. From November 2021 to November of this yr, employment in corporations bigger than 500 staff rose by solely 469,000 employees. As a substitute, it was the center of the pack that led the way in which. Employment in corporations with 20 staff or extra however lower than 500 staff rose by 3,445,000 employees (although sadly very small corporations struggled, with corporations with lower than 20 staff shedding 223,000 employees from final November to this one).
The housing market additionally didn’t undergo the blows it may need. Whereas the robust begin the housing market loved out of the gate in 2022 has come to an finish, make money working from home appears right here to remain. The consequence shall be a everlasting rise within the demand for housing that may maintain housing costs robust for a while. With out this new demand, the rise in rates of interest may have led to a housing crash in 2022 as a substitute of a mere slowdown.
All of which suggests 2023 would possibly end up higher in financial phrases, as effectively. Housing doesn’t appear prone to spur a recession, because it did in 2008. And the energy of the job market is vital to restoration, as extra individuals have incomes to make use of to spend on items and providers and there’s much less want to supply authorities help to these left behind. Adapting to the pandemic accelerated a wave of innovation in automation, IT and cloud computing that may filter all the way down to virtually each enterprise within the economic system. This could spark a increase in productiveness, particularly within the service sector, which accounts for 86% of all non-farm employees. Lengthy-term, that is the one method incomes will rise, though within the brief time period it might imply employees might want to change jobs and purchase new abilities.
With clever administration of the economic system (yeah, a giant if), we must always proceed to see the fruits of those modifications all through 2023.