The US economy will continue to show strong growth —GDP is expected to show the fastest growth for the year this quarter — and the labor market recovery will continue, according to the University of California Los Angeles Anderson Forecast. However, a more severe Covid-19 wave caused by the omicron variant could temporarily derail the longer-term forecast, it’s too soon to tell.
Released this week, the UCLA Forecast estimates US gross domestic product growth in the fourth quarter of 6.9% — the highest growth rate for 2021 — as the economy rebounds from the delta variant. Omicron emerged too late to have much effect on the quarter’s average growth rate.
Looking to the first quarter, UCLA Anderson Forecast Senior Economist Leo Feler forecast just 2.6% growth, down from an earlier estimate of 4.2%. The downward revision is based on concerns omicron might prove disruptive. On the other hand, growth is expected to ratchet up in the second quarter and reach 4.6% in the third quarter before easing to 2.4% in the fourth quarter of 2022.
In terms of jobs, Feler forecast the US will add an average of approximately 200,000 to 400,000 jobs per month throughout 2022. There is the potential for smaller gains in the first quarter if the omicron variant causes consumers to cut back on in-person services.
He noted a shortage of workers persists across the US for two main reasons. The first is labor force participation is lagging at around 61.7%. That compares to the pre-pandemic rate of 63.4% and means 3.1 million fewer workers in the labor force — including those who retired and parents who stopped working to care for children. The second reason is fewer workers hold multiple jobs now than before the pandemic.
Inflation has also been a concern, and Feler writes much of the recent increase in inflation is related to higher oil prices as demand has recovered more quickly than supply. He forecasts that supply will start catching up, meaning oil prices will come down and act as a deflationary force against inflation in other goods and services.
In addition, prices have recently stabilized or declined for some goods and services that experienced the largest increases in inflation — used cars, for example — as the supply constraints that led to rising goods prices have begun to ease. The catch-up for prices of in-person services appears to have run its course. This doesn’t necessarily mean that prices will come down, Feler wrote, but they will stop increasing at the rate they have over the past year.