From a demand perspective, the US economy has fully recovered from the pandemic recession. And production, although not yet there, will return to its long-term trend in the near future. That, according to a new forecast published yesterday in the 12th Annual Inland Empire Economic Forecasting Conference, hosted by UC Riverside School of Business.
The New Perspectives argue that while COVID-19 was a human tragedy, it never created depression like the economic conditions predicted by so many – and fear of these conditions has led to an overly vigorous stimulus response.
According to the new forecast, the current economy has been inflamed by an overly aggressive government response to the pandemic, and it is this incentive that is causing soaring inflation and supply chain disruptions in the country. ‘today.
“What we saw was one of the most formidable levels of economic stimulus ever,” said Christopher Thornberg, director of the Center for Economic Forecasting at UC Riverside School of Business and one of the forecasters. “A lot of public money has created a lot of wealth for the private sector – $ 29 trillion in US household wealth to be exact – and it has overheated the economy.”
The effects of this wealth are manifested in the form of high savings rates, excessive consumption, rapidly rising asset markets and booming house prices. Indeed, for every dollar lost during the pandemic, the US government returned three and a half dollars, according to the analysis.
Although forecasts predict that strong economic conditions will continue in the country, California and the Inland Empire over the next several years, over the longer term, excessive federal stimulus will introduce instabilities such as long-term monetary inflation. term, long-term fiscal challenges, and perhaps planting the seeds of the next downturn.
Select the main conclusions:
- In the United States, consumer spending on services, including health care, recreation, travel and hotels, is still 3% lower than it was before the pandemic. Business investment in non-residential structures also remains depressed, as do US exports.
- Weakness in these sectors was more than offset by higher than normal activity levels in other sectors of the economy, including consumer spending on goods, a booming housing market and investment by households. companies in equipment and software.
- Although long-term monetary inflation (increased money supply) remains a significant risk, inflation in recent months is most likely transient and is driven by strained supply chains and strong consumer demand.
- There are still 6 million fewer jobs in the United States and 1 million fewer in California than before the pandemic. However, in the past two months there have been more than 11 million vacancies in the country, 40% more than the highest figure on record (in 2018). The United States is not faced with a problem of demand for labor, but of supply of labor.
- Notably, California is now producing pre-pandemic production levels with nearly a million fewer workers.
- California’s population growth turned negative in 2020. The main reasons include the state’s low housing supply and extraordinarily high housing costs, as well as the stringent immigration policies enacted under the Trump administration. Combined with the overall labor shortage, this demographic trend will put further upward pressure on the wages of workers in the state.
- Although unsustainable, the growth in house prices in parts of California has been truly staggering. On average, prices in the state have increased by more than 30% over the past year.
- The Inland Empire has experienced an even stronger economic recovery than the rest of California. The region’s performance was bolstered by its central role in the state’s logistics complex and directly benefited from consumption that moved online during the pandemic.
- Overall, in the Inland Empire, 2022 will see a continuation of the trends seen in 2021. Limited labor supply will drive up workers’ wages, and higher wages, in turn, are expected to attract more workers in the labor market.
- The special topic of the conference explored the idea of developing a “major league downtown” in the Inland Empire, something that the smaller metropolitan areas of the country, from Milwaukee to Seattle, have but lacking. IE.
- One key point to remember: Despite being the 13th largest metropolitan area in the United States, the Inland Empire lacks a prominent element of other major metropolises – it does not have sports teams from major league. The reason is not only because there is no suitable stadium to put a team. Underlying this fact, EI does not have the kind of vibrant, dense central urban area (downtown) that typically surrounds major sports stadiums and can attract investment and interest.