DBJ: Wright State business college dean weighs in on economy outlook for 2022

Excerpt

Thomas Traynor, dean of the Raj Soin College of Business.

As the calendar turns to 2022, local experts are starting to make their predictions for how the regional and national economy will fare in the new year. And while many factors could affect these projections in the coming months, there are both positive and negative indicators for economic growth.

The Dayton Business Journal recently caught up with Tom Traynor, professor and dean of the Raj Soin College of Business at Wright State University, and Richard Stock, director of the business research group at the University of Dayton, to discuss local and national economic trends, factors influencing the economy, industries that will be strong and those that will lag, and overall projections for the economy in 2022. Here’s what they had to say.

What are some trends you’re forecasting for the national economy in 2022?

Traynor: For the first six months, at least, continued moderate growth in the nation’s real GDP (and real total income) and total employment level. It will not be steady growth; GDP and employment will rise slower as waves of Covid-19 wash over the country and faster as those waves subside — just as happened for the past 18 months.

Inflation will remain above normal. The shift in demand from services to goods will continue to push the production and shipping of manufactured goods against capacities in those industries, which puts upward pressure on price while output grows but not enough to efficiently meet demand growth. Demand for services, particularly in-person services, will continue to fluctuate with the waves of the pandemic, as will the ability to supply services (albeit to a lesser extent).

Continued high levels of household savings, even if Covid-related federal payments subside. Higher interest rates — the Federal Reserve will follow through on its promise to raise rates. Note that inflation-adjusted interest rates on treasury bills/notes/bonds are below zero and are likely to remain very low after the Fed increases rates.

What is one of the most significant factors influencing the economy heading into the new year?

Stock: The labor market is extraordinarily tight (3.5% unemployment rate), and unemployment claims are down below pre-pandemic levels. Despite the labor market tightness there are still 13,400 fewer jobs in November 2021 than in November 2019 (381.9 vs. 395.3) in the Dayton MSA and job growth was an anemic 1.4% from November 2020 to November 2021.

What are some trends you’re forecasting for the Dayton-area economy in 2022?

Traynor: For the most part, economic trends for the Dayton region will be similar to those for the nation. Continued moderate growth in employment and income, tracking fairly closely with national trends, rising and falling counter-cyclically with waves of the pandemic. Inflation will continue be a challenge in the region as it will be across the nation. The most important component of the region’s economic base, national defense, will continue to be a stabilizing force for the region’s economy.

Stock: Dayton continues to be well positioned as a logistics and distribution center, but if firms in those industries have difficulty attracting employment in those relatively low wage sectors due to inadequate public support of families, the employment increases won’t happen. Long term, Dayton will experience growth in professional and business services as it becomes more integrated in the greater Cincinnati area. Wright-Patt will continue to be a source of strength in that area.

What industry sectors will be strong in 2022?

Traynor: Health care, driven primarily by the pandemic; construction, driven primarily by the infrastructure bill; manufacturing; retail, including e-retail; transportation and warehousing; and utilities, driven by infrastructure spending.

Stock: Strength in construction and continued strength in trade and transportation will offset some of the fallout. However, construction itself is plagued by a dearth of the skilled workers required after the devastation to those trades caused by the great recession. Manufacturing job growth will be mixed with strength in some sectors offset by factory closings in other areas.

What industry sectors will lag in 2022?

Traynor: Information, particularly printing and broadcasting; finance, particularly branch banking and financial services; and leisure and hospitality, particularly in-person businesses.

Stock: Leisure and hospitality. These two sectors have been the hardest hit, along with state and local government. If the winter surge in Covid is as threatening as it currently seems in Ohio, there may be a long term impact on employment in both these sectors.

What is your overall projection for the economic outlook of 2022?

Traynor: I won’t project the entire year — there are too many factors that impact end-of-year outcomes that are yet to play out. For the first half of 2022, output/income and employment should grow moderately, stronger during periods of low infections and hospitalizations due to the pandemic and weaker during rising infection/hospitalization periods. High inflation will remain for at least the next four months, probably longer. Supply chain constraints will continue to be a major driver of inflation.

Stock: Ultimately, whether those people who have left the labor force return in 2022 will determine how rapid job growth in 2022 will be. Those decisions in turn are influenced by institutional constraints on labor force participation by women in particular. The crisis in child care and the on-again, off-again nature of school systems openings and closings has made labor participation difficult for families and the burden differentially falls on women. Provisions in Build Back Better could help on the child care front but require state level action to make use of the federal childcare provisions. The Ohio legislature has undermined/ jeopardized the ability to access those dollars with its attack on the Step Up To Quality (SUTQ) framework. Inflation is unlikely to have a negative impact on the economy in 2022.

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