The US economy is currently enduring some major headwinds. High inflation persists even as the Federal Reserve raises interest rates. Fallout from the escalating interest rates is affecting a number of industries and individuals, with ripple effects throughout the economy. Geopolitical uncertainty is also a factor, with not only Russia-Ukraine, but several other areas showing signs of rising tensions. However, while there will almost certainly be some bumps along the way, I don’t anticipate a major meltdown. In fact, our latest projections call for notable growth over the next five years. Let’s briefly explore a few key issues.
Inflation has proven difficult to manage. Many analysts underestimated the inflationary power of massive stimulus packages and what would happen when people started trying to spend that extra bonanza even as the supply chain was reeling from the pandemic. Added to that pressure were the disruptions in energy and agricultural markets stemming from the invasion of Ukraine, a fire in a major South Korean semiconductor facility, and other assorted calamities. Markets for various items continue to be constrained at times, pushing up prices.
Though we are saddled with some of these pressures for a while, others are lessening. Inventories of many items are rising, which should tame price increases. The housing market has cooled to some extent (see below), helping with costs to buy or rent. Wholesale prices are also moderating, which is often a harbinger of things to come. Looking over a five-year horizon, I think we’ll see inflation at very manageable levels, though it will likely take a while to get there.
As the Federal Reserve has taken action to raise target interest rates, there has been significant fallout. The housing market is particularly sensitive to borrowing costs; in most areas, prices and new construction are down. Uncertainty about the economy is adding to real estate challenges, though there isn’t a massive structural problem such as we saw during the Great Recession. High-profile bank failures (largely due to poor management of interest rate risk and institution-specific issues) have made headlines, but no major systemic issues appear to be present.
For these and other reasons (such as tensions in several regions of the globe), concerns regarding the future performance of the economy are causing some retrenchment. It’s an unavoidable outcome of what the Fed is trying to do and the vagaries of the times. Growth in the near term will undoubtedly be curtailed, though I think the chatter greatly exaggerates the risk of a major downturn. Our latest forecast anticipates growth in real gross product at a 2.81% annual pace over the next five years, while employment rises by 1.73% per year. All things considered, that is not too bad. Stay safe!
Editor’s Note: The above guest column was penned by Dr. M. Ray Perryman, president and chief executive officer of The Perryman Group (www.perrymangroup.com). The Perryman Group has served the needs of over 3,000 clients over the past four decades. The above column appears in The Rio Grande Guardian International News Service with the permission of the author. Perryman can be reached by email via: [email protected].
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Mr. Perryman’s analysis is good as far as it goes, but it is deceptively incomplete. He also tries to blame inflation on people spending the COVID stimulus funds which actually had little meaningful impact on inflation. He ignores the fact that 50% of the inflation we have endured is a consequence of excess profits by corporations. EXXON and Chevron, respectively, had 3rd quarter 2022 profits of just over and just under 200% from a year ago. That is, the oil companies took advantage of Russian aggression against Ukraine to jack up gas prices well beyond the increased cost of oil. Similarly, the major U.S. shipping companies profits were up over 3,000%. Yes, over THREE THOUSAND percent.
It would be nice if Mr. Perryman would provide more complete information instead of ignoring information that establishes the culpability of corporations for a HUGE proportion (1/2) of the inflation we have endured. Just think, if corporations had not jacked their prices up well beyond the increases in their actual costs, inflation would have topped out at a little under 5%, and we probably would be looking at inflation under 3% now.