June 10, 2022
The U.S. economy will continue to slow in the second half of 2022, and the outlook for a recession remains heightened, according to Old Dominion University’s Dragas Center for Economic Analysis & Policy.
Economists at the Dragas Center presented their mid-year economic forecast on June 10 in Newport News, and it showed a very different picture from the forecast provided just five months earlier at Old Dominion University.
Strong demand for goods combined with a tight supply chain resulted in “a synchronized global shock,” Robert McNab, director of the Dragas Center, told an audience of more than 200 people.
Inflation will continue to rise this year, he said, but the real danger lies in the inflationary expectations of the public, who are starting to make spending decisions on the assumption that inflation is worse than it looks. ‘is. He predicted that the Federal Reserve will proceed with interest rate increases for the rest of the year.
“The Federal Reserve has now changed its policy stance from ‘We’re going to increase employment’ to ‘Oh wait, the house is on fire, we better start raising the inflation dial and call the fire department. “”, did he declare.
After a strong rebound in the national economy in 2021, real GDP shrank by 1.5% in the first quarter of this year, as imports rose, exports fell and government spending cuts offset increases in personal consumption.
Economic disruptions are part of a turbulent first half of 2022. The COVID-19 pandemic has dramatically demonstrated the fragility of domestic and international supply chains, an economic stressor exacerbated by Russia’s invasion of Ukraine in February. The byproduct of empty shelves and higher prices is likely to continue through 2022 and into 2023, ODU economists predict.
Despite these pressures, they predict that U.S. real GDP will eventually grow at an annual rate of 2.2% in 2022. Virginia and Hampton Roads’ real GDP rate is expected to grow 2.4% in 2022, partly fueled by planned increases in defense spending.
These increases in defense spending are driven by US military support for Ukraine. While these spending increases benefit the Hampton Roads economy, they are not enough to dispel the belief that the country is worse off economically.
A key driver of the pessimism present in public opinion polls is the explosive rate of inflation in 2022, caused in part by the economic disruptions of the war in Ukraine, COVID and the continuing challenges of the supply chain. supply. ODU economists expect the consumer price index to rise 6.5% in 2022, slowed in the second half of 2022 by the US Federal Reserve’s interest rate hike. But mid-year economic forecasts suggest that inflationary pressures on the economy will continue into 2023, with the CPI expected to increase by 4.8%.
A positive indicator in recent sobering statistics on the economy has been job creation. The Dragas team estimates that the national unemployment rate in the United States will average 3.8% in 2022, increasing slightly to 4.1% in 2023. Employees have been empowered to seek new positions as the economy has emerged from COVID-19, leading to an increase in available career positions nationwide.
However, Hampton Roads has not kept up with its neighboring metro areas in job creation. There are 3% fewer jobs in the region in April 2022 than before the pandemic. Job creation in Richmond and Northern Virginia is 2.5% and 1% behind pre-pandemic levels, respectively. But metro areas in other states like Charleston (+1%), Charlotte (+2), Nashville (+4) and Raleigh (+4.8) all had more jobs in April 2022 than before the pandemic.
Unless concerted regional action is taken to stimulate economic growth, Hampton Roads will continue to underperform its peers for years to come.
Mid-year economic forecasts predict that the record year of 2021 for the Port of Virginia will be surpassed this year as investments in efficiency in port logistics pay dividends.
“The port has become efficient and the investments have paid off,” said Vinod Agarwal, deputy director of the Dragas Center. “We haven’t had any delays. We haven’t had any congestion. And 2022 will be even better.”
Hotel revenue is expected to grow 8.4% in 2022. This is a rare economic sector where Hampton Roads is outperforming its national peers as leisure travel has rebounded faster than holiday travel. business since the COVID-19 pandemic.
“The hospitality industry would like to forget 2020 and would like to remember 2021 for a long time,” Agarwal said.
The residential housing market has escaped the brutal economic effects of the pandemic. In fact, low interest rates and an increase in working from home have led to a mini-boom in home improvement projects. Even if mortgage rates rise alongside interest rates, economists at the Dragas Center expect median sales prices and home values to rise in 2022.
The Dragas Center for Economic Analysis and Policy at Old Dominion University’s Strome College of Business undertakes a wide range of economic, demographic, transportation, and defense studies. Since 1999, the Dragas Center has produced influential state-of-the-area reports for Hampton Roads.
The Center also does forecasts for the United States, Virginia and Hampton routes and produces the Commonwealth State Report. For more information, including previous reports on the state of the region and the Commonwealth, as well as economic forecasts, visit the Dragas Center website.
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