The following economic forecast is offered by Mark Kleinschmidt, president and CEO of the Anne Arundel Chamber of Commerce.
It has been quite a ride navigating all the twists and turns of the COVID-19 pandemic. Just when we think we are on a solid path to recovery we hit another bump. The current one is called, Omicron. Hopefully, this is just a short term set back but there are two economic side effects from the pandemic that are going to challenge us throughout 2022 and they are: Inflation and the Great Resignation. We are seeing a rapid increase in Consumer Price Index (CPI) and there are Help Wanted signs on the front door of many small businesses and job posting all on almost every website.
Impact of Inflation is not Transitory
We experienced a classic lesson about supply and demand that many of us heard about in ECON-101. When there is a decrease in supply and an increase in demand – prices go up. The supply chain disruptions caused by the pandemic helped fuel the increased demand for many everyday products and pushed prices up. Many of us cut back on traveling and spending during the pandemic and it created a lot of pent-up demand and when restrictions were lifted and we were able to go “out and about” again we wanted to spend, which also helped push prices up. Check out Figure 1 to see just how the prices on certain items went up from October 2020 to October 2021. The used car market has become very hot since they are available and more buyers don’t or can’t wait for a new car, thus driving up the prices. The spike in gas prices, along with the supply chain issues, particularly for microchips, threw another log on the inflationary fire.
The Federal Reserve Bank takes the lead in trying to control inflation using a range of monetary policy tools that influence interest rates and control the supply of money in the economy. In fact, controlling inflation is part of what is called the FED’s dual mandate: promoting maximum employment, stable prices, and moderate long term interest rates.
Throughout 2021, the FED and a lot of other economists were calling our current bout with rising prices “transitory inflation.” Well, that is not the case as many of the price increases we are seeing are going to be with us for the next 12 to 18 months. As prices continue to rise, there will be more pressure from employees for pay hikes in order to keep up. So don’t be surprised if you see your employment costs increasing in 2022.
The goal of the FED is to have an annual core inflation rate of 2 percent and an unemployment rate of about 4 percent. The Dual Mandate Bullseye Chart that is used by the Chicago Federal Reserve Bank gives a good idea of where the sweet spot of unemployment and inflation is. Unfortunately, our current rate of inflation at the end of November 2021 was 6.8 percent, which is off the chart.
To help bring the rate of inflation down, we will see a series of interest hikes in 2022 which will reduce economic activity and may also lead to additional unemployment.
There is additional concern about the unemployment rate and that is due to what we have been calling the Great Resignation.
The Great Resignation – What and Why
The COVID-19 pandemic has caused record numbers of people to leave their jobs. Some folks have cleverly called it the Great Resignation while others are calling it the “Great Quit”. These numbers are dramatic and have increased; the number surged to 4.53 million in November. This exodus from the workforce is happening for several reasons and placing an added strain on many businesses as they search to fill vacant positions. The leading reasons why people are leaving their jobs include:
- Fear of COVID-19
- Rampant stress at work
- Reassessment of their work-life balance
- Shift to remote work
- Movement to new career
- Early retirement
All of these factors have brought about a much bigger discussion about the future of the workforce. There is a broad consensus that the future will include more people working from home. In fact, we have new anacronym: WFH. More women have decided to not return to work because they are confronted with child care or elder care issues. We are also seeing an exodus from health care professions due to sheer burn out. We need to do a better job of understanding the work-life balance. The pandemic caused many of us to reassess our personal and financial priorities. Employees are putting more emphasis on the life portion of the equation, and employers need realize this and implement a few changes. Here are a few thoughts:
Build Your Company’s Culture
We spend a lot of time together during the work week, so it is vital to have company culture that creates a positive and welcoming environment. We need to enhance the employee experience by spending more time thinking about the work environment we create for employees.
Show That You Care
Think about flexible scheduling options to support your employees. If you don’t already have a reward or bonus system, think about putting one in place. Also be prepared to offer better compensation packages with time off and other perks. Yes, this could include higher wages but if you want to keep good people on your team, you have to make the investment.
Take the time to really look at the job responsibilities and work load of all your employees. Multi-tasking had become the norm and doing more with less is nice but this can take a happy and productive employee and cause them to look for other employment options.
Embrace the “Gig Economy”
There will be a new pool of highly qualified people from the “Big Quit” who want flexible schedules and want to work from home. You maybe able to tap into this by re-thinking the structure of your team and using 1099 employees to get things done.