The new normal in the economy.

By: Diana Bello Aristizábal

 

Para leer en Español

Since March 2020, the United States has been experiencing an economic transformation that is changing the game’s rules, both positively and negatively. For this reason, 2022 will be the year of readjustment, which does not mean returning to pre-pandemic levels, but rather beginning to face a new normal.

This new normal to which we have arrived was conditioned by factors such as the government economic stimuli, quarantines, and the closure of businesses due to COVID-19, that served as fertilizer to revolutionize the labor market and the new variants of the coronavirus.

As a result, today, we are as a society facing the consequences of everything that has happened since 2020, which allows experts to make a projection of how the economy could turn out this year and what challenges await us.

Inflation and growth

According to Nelson Sotomayor, an economics professor at Miami-Dade College, the economic growth rate was 5.5% for 2021 and is forecast to reach 4% this year.

“The typical growth rate in the United States is between 2 and 3 percent. In 2020, there was a slowdown in economic growth due to the start of the pandemic, then in 2021, it rose above average, and for this year, it will drop again, which is normal and doesn’t mean the economy is stagnating,” he clarifies.

However, according to Tulio Rodriguez, economist, and real estate developer, the apparent economic growth of 2021 comes from printing inorganic dollars, that is, money not backed by the strengthening of the internal economy but by factors such as the stimulus checks.

“Printing what we know as inorganic currency leads to inflationary cycles, and inflation is the biggest enemy of any economy. That’s why you have to control it.” 

On this regard, as we go to press, it was announced the inflation based on the consumer price index reached its highest level since June 1982 with 7% at the end of last year, according to the Bureau of Labor Statistics.

Against this background, although it’s not yet possible to predict whether it will continue to rise or not, the trend is that in the next 24 months the prices of goods and services will rise steadily, as occurred in 2021 when the increase in prices didn’t stop even in the last month.

For Nelson Sotomayor, the problem of inflation began, among other things, when the power of consumers grew. “There was a very high demand and a low increase in supply, this relation being one of the reasons that led to the rise in inflation.” 

From this perspective, he thinks this year the demand will continue to be strong because citizens are looking for better paid jobs and, for that reason, they will spend more money. However, for the economist, this year, the gap between supply and demand would decrease, just as prices would throughout the year, excluding energy and food, which tend to be volatile.

But, a question pop ups, will we continue to see empty shelves? Tulio Rodriguez says, yes. “2022 and 2023 are going to be more of the same. We will continue to see shortages.”

The above is due to the fact the market has not yet recovered from the interruption in the supply chain that occurred last year when ships weren’t able to unload merchandise in some ports, and there was a shortage of staff, which delayed delivery times.

Another factor that negatively made an impact on the delivery and receipt of products worldwide last year was the difficulty in finding essential parts within the production of a good, as happened in the automotive industry when semiconductors that are necessary to manufacture cars, began scarcing. Consequently, there was a low supply of automobiles as opposed to the demand.

“It takes time to reestablish this interruption in the supply chain, and for this reason, the next two years may be complicated with a tendency to improve,” says Tulio Rodriguez. 

Prospects in the labor market

One of the aspects that has had the most influence on the economy is, without a doubt, the labor force. This matter deserves a rigorous analysis even when the unemployment figures indicate that we are on the right track, since there are still four million fewer Americans in the market than on the eve of the pandemic.

“According to the latest report, the current unemployment rate is of 3.9%. If we look at this figure alone, we can think that we are within normal parameters, but that is not the reality,” says Nelson Sotomayor.

According to his analysis, one of the things that has changed the labor market the most is that flexibility became the biggest attribute for employees due to the pandemic. Nowadays, it is becoming more and more common for people to quit their jobs hoping to get something better in terms of working conditions and wage.

“For every 3 job offers, there are 2 people looking. This relationship changes when we look at lower-paying jobs. In that case, the tendency is for there to be many more open positions than people interested in taking them”, he adds.

For Tulio Rodriguez, the fact that there are fewer individuals applying for jobs is a problem that, for now, is not on the way to being solved. “People have to be taught how to fish, not give them the fish, but the government did the latter with the stimulus checks, which resulted in many preferring to live off it rather than work.” In his opinion, not addressing this problem could create a greater negative impact on inflation and growth by 2022.

However, the increase in small businesses could favor the economy, although the benefits would be seen in 2023 as it is a gradual process that requires time for incubation and development.

The difficulty for these small businesses is that it will be hard for them to compete with big companies in terms of salary and benefits, but this also depends on the industry in which they operate. “By 2022, growth in tourism and consumer staples is expected, while the financial and construction sectors will be in greater difficulty,” suggests Nelson Sotomayor.

 

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