With less than eight weeks before the end of the year, many are beginning to ask what the US economy might look like in 2022.
The recovery from COVID continues to push forward but the movement is stubbornly slow. Throughout the mid-1990s and mid-2000s the annual U.S. GDP growth surpassed 3 percent. Many analysts believe this performance will be unattainable in the coming years.
There are three reasons for this low growth outlook.
First, long-term unemployment numbers have been persistently low. As a result, economic activity at the consumer level remains muted.
Second, the 2020 recession prevented many businesses from investing in their operations which dramatically slowed innovation. The effect of this interruption will be lasting.
Third, the baby-boom generation continues to enter retirement in massive numbers. This trend accelerated during COVID’s peak when baby-boomers dropped out of the labor force amid lockdowns, layoffs, and plummeting equity markets.
These reasons explain why the U.S. Bureau of Labor Statistics expects 2022 to usher in a period of slow GDP growth that will become the “new normal.” This, however, is just one opinion. What are other analysts forecasting?
Others have similarly low expectations. Goldman Sachs recently reduced their economic growth target for the U.S. to 4.0% for 2022. One reason for this outlook was their expectation of a “longer lasting virus drag on virus-sensitive consumer services.” Goldman also expects consumers to spend less because of the wide scale shift to working from home.
The outlook from U.S. Bureau of Labor Statistics and Goldman Sachs also agrees with forecasts from The Conference Board, a non-profit research organization founded more than 100 years ago. Their analysis, which examines the global GDP, suggests a deceleration as “quarterly growth rates recorded toward the end of next year will likely show a slowing global economy.”
These challenges are likely to be intensified by existing global supply chain challenges which have broken the connection between businesses and consumers.
These projections do not portend doom, but they do paint a very underwhelming picture of the future U.S. and global economy. For investors this likely means that there will be fewer ways to generate a return on their savings. Moreover, those places that do generate an adequate return may present greater risk as the world continues to adjust to a new system. This new system will be characterized by less reliance on global trade, digital disruption, a more geographically distributed workforce, and a decrease in consumer activity.
In this setting, investors should consider defensive moves that diversify their holdings across assets that are not as closely tied to U.S. and global economic growth. Additionally, investors will need to consider assets that can weather inflation. For most investors gold is the answer given that it has delivered an average return of 15% during periods when inflation exceeds 3% according to research from the World Gold Council.
2022 is fast approaching and the time to form a plan is now.
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