The 4 Top Economic Issues to Affect Contractors in 2022
Guest Blog: written by Dr. Chris Kuehl, Ph.D., Co-founder and Managing Director of Armada Corporate Intelligence and Chief Economist for the National Association for Credit Management
Does it all go away in 2022? Of course, it doesn’t. The changing of the calendar may have meaning to us but the economy just keeps on chugging along as it had been. We can expect to see in 2022 much of what we saw in 2021 but there are always some differences and shifts that may improve certain situations and, in some cases, make them worse. As we transition into the next year, we will have to contend with the same four issues we dealt with in the past year – inflation, labor shortages, supply chain breakdowns, and the impact of the pandemic.
There have been nearly hysterical assertions regarding inflation and these need to be dismissed as nothing more than hype and scaremongering. Indeed, inflation has not been this high in thirty years as the US has experienced almost no inflation at all in 30 years. The main factor in this long period of stable prices has been globalization. When the price of labor got too high, companies moved overseas. When the costs of production became excessive companies outsourced to overseas suppliers. In the last three decades, those overseas prices climbed and changes in the domestic production community allowed US companies to be competitive. This year the issue was supply chain and there will be more on this later. The fact is that production started to push back to the US and that also meant higher prices. The last several months added pressure from wages and higher commodity prices and the influence of excess money supply. The reality is that old-fashioned inflation has returned – averaging around 5.0% the last several months. This is NOT hyperinflation and it is NOT stagflation – not even close. It is a problem serious enough to prompt the Federal Reserve to start talking about an interest rate hike and the consensus view is that these rates will start to go up by the second quarter of 2022. By the end of the year, they could be as high as 1.25% or 1.5%. Still historically low but far higher than has been experienced in years.
2. Labor Shortage
The latest data suggests this will be an issue that is with us for a long time. There are over 11 million jobs on offer and around 7 million people available to work. The vast majority of those people lack the skills needed by those that are hiring. The primary problem is that workforce participation rates are at the lowest level seen since the 1970s (61%). The culprit is retirement – the fact that some 10,000 Boomers reach retirement age every day. This has resulted in the loss of some 3 million workers per year for the last several years. The combination of retirements, lack of training, and the fact that some 7 million women are struggling to get back in the workforce due to childcare issues, create an issue that will not be dealt with anytime soon. Traditionally, the US has turned to immigration but what is needed now are skilled and educated workers from around the world and every nation in the world wants that same person. All this labor shortage results in higher wages – most companies now expect to issue substantial raises in the coming year.
3. Supply Chain
There may be some better news as far as the supply chain is concerned. The maritime sector has started to see freight rates decline as the peak shipping season has come and gone but they are still almost 60% higher than they were even seven or eight months ago. There has been little improvement elsewhere along the supply chain as there are still shortages of truck drivers and too little overall capacity in trucking or rail. The load to truck ratio is still 7.5 and that is as high as it has been in two decades. There is not enough warehouse space either. Right now, Amazon accounts for one-third of all the warehouse construction in the US and they still can’t keep up. The good news is there has been an opportunity for the producers to catch up with demand and they will be able to maintain that position into the coming year. Even the computer chipmakers assert they will be able to meet the demand from the auto sector and others that have been requiring these computer chips.
Let's talk about the elephant in the room. What can we expect as far as the pandemic? To be honest there is no way to answer that question. We thought we had an understanding and then we were visited by the delta variant. Now we have omicron and it is undoubtedly not the last. This is the way that viruses work, the reason we have a new flu vaccine every year. The virus adapts and morphs and survives. All that can be done is to protect against what we know and be ready to respond to something new. From an economic perspective, it seems we have recovered and are better prepared to respond without destroying the economy in the process but that remains to be seen.
About the Guest Author Dr. Chris Kuehl, Ph.D.
Armada Corporate Intelligence was founded by Keith Prather and Chris Kuehl in 1999 and has been providing economic analysis and strategic guidance since. They are essentially “Economists for rent” working with several manufacturing associations, 12 state accounting societies, and other organizations while also speaking at over 125 events around the country each year.
Dr. Christopher Kuehl, Ph.D. is a Managing Director of Armada Corporate Intelligence and one of the co-founders of the company. Chris earned a doctorate in Political Economics and advanced degrees in Soviet Studies and Asian Studies and was a professor of international economics and finance for over 15 years before starting the company. He and his co-founder Keith Prather have worked with a wide variety of private clients in manufacturing, fabricators, transportation, construction, as well as professional associations and have co-authored many publications. For more information, visit Armada Corporate Intelligence at https://armada-intel.com.
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