Predicting the future is messy business even in the most stable of times, and whatever you want to say about the current moment, stability certainly isn’t in these days. That’s why we’re not going to join the ranks of economists putting out forecasts in January.
But that doesn’t mean we no sense of what some of the big stories of 2022 are likely to be. We here at BTC have our eye on a lot of things these days, and here are a few of the big questions that will shape the economic reality people in North Carolina will be dealing with.
Will government investments continue to speed the recovery?
Without swift, massive, and sustained government assistance, COVID-19 could easily have created an economic collapse unlike anything in recorded history. It may be hard to imagine given the enormous human toll that this pandemic has taken, but it could have been MUCH worse. Instead, we’ve seen a lesson in the power of the public purse to keep families above water and speed an economic bounce back.
Compared to the Great Recession when the federal response was much smaller, the recovery from the initial shock of COVID-19 has been remarkably swift. November marked 20 months since the state of the COVID-19 recession, and North Carolina is within 1 percent of pre-pandemic employment levels. Twenty months into the Great Recession and North Carolina was still losing jobs and wouldn’t recover all of the lost employment for more than six and a half years. Of course, the cause of these two recessions were very different, but there’s no question the much larger federal response is a big reason the recovery has been so much faster.
Several major federal packages have kept people from going broke and left some families financially better off than before the pandemic. Supplemental unemployment insurance benefits, stimulus checks, rental assistance, fiscal aid for state and local governments, and more across multiple federal laws helped keep food on tables, roofs over heads, and customers with cash in hand to support businesses.
The big question for 2022 is whether support for people and communities still trying to rebuild will continue. We’re not out of the woods yet, and people have been wrongly predicting the end of this pandemic for a long time. People are still getting sick and losing income, struggling with child care, paying rent, getting enough to eat, and other barriers to financial security. Many forms of aid and economic stimulus (like federally funded unemployment insurance benefits) have already been cut off, and there’s a real risk that the recovery will be slowed by lack of public investment.
What happens with inflation and how do we respond?
Inflation has become a legitimate concern in the past year as a lot of basic necessities have become more expensive. The official measure in December indicated the cost of the average set of goods consumers buy across the country was 7 percent higher than at the end of 2020. This level of inflation is certainly higher than anything we’ve seen in the past few decades, but nowhere near what occurred during parts of the 1970s and 1980s when inflation really did create enormous economic problems. So long as inflation stays constrained near its current levels, it’s unlikely to threaten the course of the recovery in any major way.
Some things are getting more expensive A LOT faster than others, though. Some of the biggest increases were for commodities that already consume a larger share of low-income people’s budgets than their more affluent neighbors. Gasoline was just about 50 percent more expensive at the end of 2021 than a year earlier, piped gas used in homes was 24 percent more costly, and the price of used cars and trucks was up by more than one-third. Another major question is whether the cost of rent will continue to rise. The cost of shelter increased over 4 percent during 2021, but a lack of housing stock and increasing housing costs in communities that were once more affordable could pose a major concern for lower-income renters.
Perhaps even more than inflation itself, the big question in 2022 is what policymakers will do in response. As noted already, the current level of inflation is not a systemic problem yet, but it there are real risks that our policy response may be.
The biggest concern is whether inflation is used to justify cutting off support for communities and people still being financially hurt by COVID-19. Some lawmakers like West Virginia Senator Manchin have leaned on concerns about inflation to justify opposing additional federal support, like the Build Back Better plan. Don’t believe it. Inflation is being propelled by a host of factors that have nothing to do with COVID aid, like strained broken supply chains, corporations jumping on the opportunity to pass on costs to consumers, and gas prices. We can help people hurting because of COVID-19 without driving costs much higher, so the big question for 2022 is whether we inflate the risk of inflation and stop investing in a real recovery.
Supporting a strong recovery does mean helping people who are truly being affected by rising costs. With energy, food, shelter, and transportation getting more expensive, low- and middle-income North Carolinians are going to feel the squeeze the most. Failing to provide assistance could make it harder for people to work, which would create economic problems that affect everyone.
Will the recovery become more equitable?
With the main unemployment rate under 4 percent, it may seem like everyone who wants a job can find one. But that’s not the reality for a lot of people, particularly workers of color. As we saw in the aftermath of the Great Recession, economic downturns often last longer for people of color than their white colleagues. We don’t have data through the end of last year yet, but in the 3rd quarter of 2021, the unemployment rate for Black job seekers in North Carolina was still at 5.9 percent, compared to only 3.8 percent for white people.
These inequities aren’t just wrong, they hold back economic progress. For all businesses complain about needing workers, there are clearly systematic disadvantages people of color face. Achieving the economic benefits of equity will take a sustained effort to dig up the foundations of financial disenfranchisement that have been laid down across generations.
Will wage gains continue?
One of the best things that happened last year is working people being able to get real wage increases. As employers up and down the wage scale competed to find workers, many were forced to offer higher wages, signing bonuses, and more benefits in a way that has not happened for years. The average hourly wage in North Carolina increased by over 7 percent in the last 12 months, a bigger jump than any year in the past decade and somewhat outpacing inflation. Even better, the gains were quite widely shared. Working people up and down the payscale, of all races, and regardless of educational attainment secured wage gains, unlike the previous decade when real wage increases were largely limited to workers already earning the best salaries.
The big question now is whether working people can consolidate and expand the gains they’ve recently made. The answer will be rooted in both economic dynamics and what workers do to seize the power they possess in this moment. Short-term wage increases are largely rooted in employers’ need to find workers. But for those gains to be truly durable, working people must strengthen the leverage they possess collectively. We’ve seen for decades that absent policies like raising the minimum wage and organizing to secure better working conditions, rising tides absolutely do not raise all boats.
Will out-of-state hedge funds and corporations gain more control over local businesses?
The run up in stock prices in the past few years has left big corporations, hedge funds, and other deep-pocketed investors flush with newfound wealth. These enormous gains by super rich institutions are fueling an unprecedented buying spree, as they acquire previously independent businesses. Mergers and acquisitions globally topped $5 trillion in 2021, an all-time record. Combine this with many local mom and pop shops being forced to close throughout the pandemic, and what we’re seeing is more of the business landscape controlled by rich owners without roots here in North Carolina.
If that trend continues, more of the wealth will leave the communities where successful businesses operate. Local owners often recirculate more of the wealth their businesses generate within their communities, both through how businesses operate and where they spend their personal earnings. When those ties to communities are severed, we often see the profits leaving to pad wealthy pockets and corporate balance sheets outside of North Carolina.
Will we use this moment to make long-term change?
There is an opportunity in this moment to address some of North Carolina’s deepest-seated injustices. COVID-19 laid bare so many of the deep divides in our state: the ways frontline workers are often forced into dangerous situations, the lack of affordable childcare, racial inequities in who has access to jobs and wealth, digital deserts, and more. Unfortunately, the General Assembly missed a lot of opportunities to use state and federal funds to address the deepest issues facing our state. The good news is we can still do better. There are still federal funds to be used from acts already passed that specifically focused on COVID, the Infrastructure Investment and Jobs Act that will fund investments for years, and potentially additional support in the Build Back Better proposal. We also have opportunities to rethink state and local investments in the years to come. The legacy of this time will be complicated regardless of what comes to pass this year, but we have the power to emerge from this ordeal stronger and more just.
Patrick McHugh is the Research Manager for the N.C. Budget & Tax Center.