Economic optimism about emerging from the pandemic’s shadow is progressing in a two-steps-forward, one-step-back manner, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

“Case in point: 2021 was a tale of two halves. The U.S. economy grew by 6.5 percent in the first half of the year, powered by the Covid vaccination campaign and a third federal stimulus program. Consumers began returning to restaurants, scheduling elective procedures and resuming personal travel,” Dhawan said today (Feb. 23) when he delivered his economic forecast for 2022 and beyond.

By contrast, the forecaster noted, “the second half of 2021 was marked by moderation. The Covid-19 delta variant slowed restaurant and hospitality sales, the end of extended unemployment insurance payments dented consumer purchasing power, and gasoline prices surged to $3.40. The tailwinds that boosted consumption in early 2021 turned into headwinds by the fall of the year.”

Economic progress in 2022 hinges on multiple variables, according to the forecaster. “People are welcoming a return to normalcy and everything that comes with it. The usual issues that were in the background for the past two years are returning to the forefront, and they can and will affect consumption. These include potentially excessive interest rate increases by the Federal Reserve (policy mistakes), the end of federal stimulus programs (fiscal tightening), oil price sensitivity to Russia-Ukraine tensions (geopolitics), and the much-awaited return to the workforce of individuals who dropped out during the pandemic (reduced potential growth).”

Supply chain issues continue to bedevil economic recovery, with Consumer Price Index (CPI) -based inflation running above 7.5 percent in Jan. 2022 (more than triple the 2.4 percent CPI rate in late 2020).

“Surveys that assess consumer areas of concern indicate people are not as worked up about inflation as the financial press is. The number one concern among consumers is dysfunction in Congress, followed by the coronavirus, with inflation further down the list. That said, consumer confidence has steadily declined since fall 2021 when inflation began to pick up,” Dhawan said. “To paraphrase former Fed chief Alan Greenspan, ‘It’s not what the consumer says but what the consumer does that matters.’”

Dhawan noted that “there is a great deal of chatter in the financial press about how many times the Fed will hike rates this year and how aggressive an approach it will take to balance sheet reduction, with speculation ranging from three to seven rate hikes in 2022.”

The forecaster thinks the Fed will hike rates three times between March and July for a total of 75 basis points. Dhawan anticipates another rate hike in September unless supply chain snarls begin to normalize, thus alleviating inflation, and if earlier rate hikes have not already cooled down interest-rate-sensitive spending

“The stock market volatility of the past two months has made certain indexes flirt with a bear market. The resulting negative wealth effect not only will weaken demand for big-ticket items (such as cars, appliances, electronics, etc.) but also may pump the brakes on rapid home price appreciation,” Dhawan posited. “If the economy moderates sufficiently by July or August, the Fed may skip the September rate hike and hold back until December.”

Whichever scenario emerges as the nation moves back to normalcy, Dhawan anticipates “wobbles” if another coronavirus variant occurs. “Not even epidemiologists can predict when the next variant will emerge or how severe it will be – which would be potentially bad news for the ongoing recovery of the hospitality industry and other human-contact-based activities.”

Highlights from Rajeev Dhawan’s National Economic Forecast

• GDP growth will be 3.4 percent in 2022, 2.3 percent in 2023 and 2.5 percent in 2024.

• CPI inflation will be 5.9 percent in 2022, moderate to 2.7 percent in 2023 and 2.1 percent in 2024.

• The 10-year bond rate will average 2.5 percent in 2022, 3.2 percent in 2023 and 3.4 percent in 2024.

• Housing starts will average 1.428 million in 2022, 1.207 million in 2023 and 1.209 million in 2024.

• Vehicle sales will average 15.0 million in 2022, 16.2 million in 2023, and 16.7 million in 2024.