MUNCIE, Ind. — Consumers in east-central Indiana and across the country are getting serious about spending this holiday season, burning through savings accrued from pandemic shutdowns and the government largesse that comes with them.
But economists who presented Thursday at the Ball State University Center for Business and Economic Research’s annual economic outlook said the effects of the early stages of the battle against COVID-19 are working their way through the economy and that 2022 should be a period of more normal activity and growth. But many changes will remain, including profound transformations in the labor market.
“People are staying home with the kids,” said Michael Hicks, center director at BSU.
Continued: Michael Hicks: Still Talking About Inflation Risks
He said 5.5 million people had left the workforce because of COVID. Many of these people will not return.
Household savings soared in 2020 because people were unable to shop during store closings. Savings grew by $2 trillion in 2020 compared to 2019. The result was a return of consumers to markets, with non-durable goods, such as recreational vehicles, driving strong sales.
“Families are now spending some of those excess savings that contributed to occasional shortages in late summer and early fall,” he said. “Monetary policy expanded access to credit, driving real interest rates to sustained negative levels. This fueled house price growth and a buying spree that likely peaked over the Christmas 2021.”
But the transformation of the labor market has been profound. More jobs will continue to be done remotely and more people will continue to opt for part-time work over full-time as people continue to adjust to life with the pandemic.
“Many companies are seeing opportunities in remote working, and there is a marked increase in demand for more skilled workers,” Hicks said in the outlook report. “Over the past year, job postings for college graduates have increased by 7%, while job postings for high school graduates have decreased by 8%. This means that there There are about five times as many job openings for college graduates as there are for high school graduates nationwide.”
He said 2022 should see unemployment rates return to the 4% level. Economic growth is expected to return to levels in line with those seen in 2017 and 2018, around 2.8%.
But Hicks noted there was a lot of uncertainty about the forecast due to COVID-19.
“It’s still with us,” he said.
Rising inflation, he said, does not appear to be a long-term issue at this point. There were, however, significant price increases for homes, used cars and basic commodities.
The home-buying “frenzy” was largely fueled by mortgage rates, which fell below zero in real terms, Hicks said.
Government stimulus has been inflationary, but Hicks said he does not expect such action to continue.
“Barring any significant economic setbacks,” Hicks said he was confident “the Federal Reserve will tighten monetary policy in 2022” due to inflation fears.
“The price increases of recent months are likely to be largely permanent for many goods and services,” he said. “But we don’t expect inflation rates to rise or price level to accelerate in 2022.”
Locally, Hicks said east-central Indiana faces the same challenges as the rest of the state.
“The leisure and hospitality sectors impacted by COVID have seen a fairly continuous recovery through 2021,” he said.
But this recovery will likely be dampened by a tight labor market and reduced demand for services due to a continued loss of population in the region.
The center reported that the 2020 census showed an average annual loss of 421 people in Delaware County from 2010 to 2020.
“There are few policy initiatives today that will offset the broad population decline in ICE,” Hicks said.
Much of the region’s growth comes from an expanding Indianapolis metropolitan area.
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Overall, he said, the response to the pandemic from people in business across east-central Indiana has been impressive.
“It’s a huge testament to free markets,” Hicks said.
Residents have made local decisions about how to provide services to people and stay in business despite shutdowns and COVID.
Suzanne Newcombe, partner and labor attorney at the Indianapolis law firm SmithAmundsen who presented at the event, said the way businesses have responded to COVID-19 was surprising.
“Our adaptability was incredible,” she said.
The number of employees who suddenly took to doing their jobs remotely and the amount of work that could be done remotely was startling, she said. Businesses are just beginning to realize what can be done in different ways.
David Penticuff is the local government reporter at the Star Press. Contact him at [email protected]