Leading national and state economists are predicting a continued economic rebound during the holidays with momentum continuing through 2022, according to reports delivered Wednesday.
Rising prices, however, also will continue and consumers will lose buying power even though wages are increasing. Economists examining the U.S. economy both said inflation will remain well above 2% and is likely lead to lower consumer spending.
Next year, Arkansas should see personal income rise about 5% though consumer spending will decline from robust levels during the pandemic and unemployment likely will remain below 4%, Michael Pakko, chief economist with the Arkansas Economic Development Institute, said Wednesday during an online forum highlighting the state and national economies.
"That will pull the rug out from under what have been astronomical retail sales figures over the past few months," Pakko said, noting that Arkansans have outspent the nation in key categories over the past few months though that should change going forward.
"Here in Arkansas, because that gap and trend in consumer spending ... has grown so wide, we're likely to not only see a flattening of consumer spending but a little bit of a downturn as we go into 2022," Pakko said. "We're probably experiencing peak spending right here at the holiday season in 2021."
Economic projections for the nation and state were delivered virtually during the annual Little Rock regional economic briefing by Pakko and Kevin Kliesen, business economist with the Federal Reserve Bank of St. Louis.
Nationally, there are two major forces at work influencing economic growth: inflation and labor markets, according to Kliesen.
"Inflation is high and is likely to remain high well into 2022," he said, noting that price increases are moving higher than wages. "That's a problem if it persists," Kliesen said. "That will probably translate into weaker spending going forward."
Right now, consumer demand is robust and some businesses are using that as an opportunity to raise prices, he said. "These firms aren't raising prices to protect their profit margins, they're raising prices because they can," Kliesen added. "This is kind of a change in psychology ... that we really haven't seen for two or three decades."
Labor markets are challenging for employers while opening more opportunities for workers, Kliesen said, noting there are nearly 10.5 million job openings across the country and employers are easing standards such as drug testing and background checks to lure workers.
"The pandemic wiped out nearly 10 years of job gains, but it's also recovered nicely," he added, noting national unemployment could fall below 4% by year's end. "We're predicting the unemployment rate to continue to fall well into the next year."
U.S. unemployment was 4.6% in October. Arkansas' unemployment rate was 4% in September; the state is scheduled to release the rate for October on Friday.
This year, Arkansans contributed to a "consumer spending boom" as the state outperformed the nation in nearly every key spending category: clothing, groceries, food services, vehicles and building materials, among others, according to Pakko's analysis.
Arkansans took advantage of an opportunity where "economic shutdowns were less severe in Arkansas than elsewhere," Pakko said in his presentation.
That is projected to change over the next two years. Pakko is predicting overall retail spending of negative 3.9% in 2022 before rising to 2.3% in 2023. Nationally, projections show retail spending at negative 0.6% next year and 2.3% in 2023.
Kliesen is predicting the nation will have real gross domestic product growth of 2.5% in 2022, with inflation just over 2% and unemployment of under 4%.
In Arkansas, Pakko estimates overall personal income growth of 4.2% next year and unemployment as low as 3.3%.
Job growth should be "steady as she goes," Pakko said as the state recovers many of the jobs lost during the pandemic. "We're likely to see strong job growth in the 2% range," he said, noting that about 10,000 retail jobs could be lost next year as consumers pull back on spending while professional and business services is projected to gain nearly 11,000 jobs.
"The other sectors are a mix," Pakko said. Across all categories, Pakko is projecting a job gain of more than 25,000 statewide in 2022.
The state's labor force, which has been in decline for much of the year, should rebound next year, Pakko said. "We'll be back close to where we were before the pandemic," he added.
Both economists emphasized their projections are estimates based on current conditions and key indicators that monitor spending, jobs and other economic areas. Continued inflationary pressure and potential risks that spinoff from the pandemic could weaken the predictions, they said.