The last year saw the greatest economic growth since Ronald Reagan’s presidency. For many, however, 2021 felt more like “Morning In America” than a night of restless nights, drained by sleepless dreams about the continuing pandemic.
Thursday’s Commerce Department report showed that the nation’s gross domestic product increased 5.7% in 2013. This is the largest increase since 1984. However, the growth was uneventful and slowed down as successive waves of infections thwarted any hopes for a sustained recovery.
As the omicron variant spreads, there is more uncertainty for the year ahead. In the meantime, the Federal Reserve is preparing to increase interest rates, possibly aggressively, to combat stubbornly high inflation.
Mark Zandi (chief economist at Moody’s Analytics) stated that “it wasn’t an easy line for the economy last Year, for sure.” “The pandemic continues to bind the economy.”
Last year, saw a boom in business due to millions of Americans getting vaccinated. This allowed them to travel more and eat out more. Employers added nearly three quarters of all the year’s job growth in June and July.
However, growth was slow when the delta variant became available.
It was insane. It was an incredible roller coaster ride,” said Dave Krick, who runs three restaurants in Boise.
Krick had high expectations for the end, having enjoyed a busy October. He was planning to host private parties in his restaurant again, but he was forced to stop hosting them when the infection rate began to rise as the Omicron variant spread.
It was just a teaser. Krick stated that they believed the holiday season would be great. “Those holiday parties are an important part of making the year successful for us. We basically canceled it all.”
A whimper and an economic bang
According to the Commerce Department, GDP grew at 6.9% annually in the three most recent months of the year. This was due in part to stronger exports as well as an increase in inventories.
The fourth quarter was just as uneven as the previous nine months.
Zandi stated that Q4 began with a bang, and ended with a whimper. Zandi said that October was a great month for the economy. Consumer spending and investment were all on point. Then, in December, omicron sprung onto the scene and caused a lot of destruction.
Although unemployment is at 3.9%, the lowest level since the outbreak of the pandemic, employers added just 199,000 jobs in December.
Forecasters predict that this weakness will continue into the new year.
In response to the omicron waves, some employers have cut jobs and claimed unemployment benefits as a result.
Although last year’s economic growth was among the highest in decades, it still fell short of what economists had hoped for. After passage of the $1.9 trillion American Rescue Plan forecasters predicted growth up to 7% . This was fueled by widespread vaccinations, and pent-up consumer demand.
Zandi stated that there were too many people who did not get vaccinated. “It is admirable how the economy performed, despite vaccines not exactly solving the problem.”
Krick, the owner of the restaurant, stated that despite having a lot demand, they weren’t able do as much with it.
Due to increased wages and the introduction of new health benefits, his labor costs have risen sharply. As a result, the restaurant’s food prices are on the rise.
Krick stated that “our supply chains don’t like this rollercoaster.” We have difficulty predicting what we will get or not, so we must adjust our menus quickly. This takes a lot out of our energy and time. It’s also very expensive.
Restaurant meals were 6% more expensive in December than they were a year ago. Overall inflation was 7%, the highest level since 1982.
Will 2022 be even better?
The path of the pandemic and the fight against inflation will continue to dominate the new year.
Wednesday’s Federal Reserve announcement indicated that it will begin increasing interest rates at its March meeting. This is in an effort to maintain a lid on price increases. Markets expect three more rate hikes this year.
The challenge for the central bank is to not apply too much brake pressure and slow down the economy too much. This is a difficult task considering that some economists feel the central bank has waited too long in tackling inflation.
Jerome Powell, Fed Chairman, stated that although we expect some slowing of the economy due to omicron’s effects on it, it should only be temporary. “We believe that the economy’s underlying strength should be evident fairly quickly after that.”
Zandi expressed his confidence that the central banks could withdraw gradually its easy-money policies, without stalling recovery.
He said, “I believe they’ll be capable of doing it and landing the economic plane onto the tarmac.” It might be a bit bumpy. The economy has a lot to offer.
The federal relief programs that had pumped trillions into the pockets of people during the pandemic are now all gone. However, restaurants are asking Congress for additional assistance.
Zandi believes that the economy will expand at a slower rate of around 4% in 2022.
Zandi stated that “all of us are getting better at navigating the virus, and learning how it affects our lives and how we can live with it.” “Hopefully we will have another great year in 2022.”
Krick also believes that business will rebound. However, he isn’t making any predictions for the year ahead.
He said, “One thing that we know now is that we don’t know what the future holds for us in 2022.” We are bleeding cash and hoping for a better spring and summer, mainly because there is no other choice. It’s an odd time to run a restaurant.