5 charts that explain the 2022 economy

If the economy of 2020 and 2021 was dominated by covid closures and subsequent reopenings, 2022 was a year of shocks and aftershocks.

The economy is clearly still in the reckoning with covid-19 – a small portion of the population is at work, and the personal economy has not returned to its pre-covid strength. But 2022 has brought its own unique challenges, namely, the Federal Reserve responding to inflation with the highest interest rates in decades and a European war between major exporters.

Houses

The economy started this year hot, hot, hot. Employers relieved workers, and their wages rose accordingly. Home builders are throwing away everything they can while home sellers are seeing price growth they couldn’t believe – and home buyers are taking advantage of the last few months of low interest rates to snap up more homes across the country.

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The Federal Reserve is doing everything it can to end all of that. It started raising interest rates in the spring, and the housing market took a hit. Home sales fell, builders stopped building, and stock prices continued the fall that began late last year.

Inflation

But the economic shock was not only internal.

When Russia invaded Ukraine, the entire world commodity market went haywire. Russia and Ukraine are both major exporters of agricultural products such as wheat, while Russia itself exports (or exports) a large amount of oil and natural gas. Gasoline prices are rising, as are food prices around the world. And while the Fed had firmly changed its approach to combating inflation over the summer, its policies are taking time to have an impact on the economy. All of this added up to the highest annual inflation rate since the early 1980s, with inflation reaching just over 9 percent in the summer.

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Although inflation is still high, it has slowed dramatically by the end of the year, with monthly readings showing a slight increase in prices, thanks in large part to lower gas and commodity prices, as wage growth remains historically hot.

That’s because throughout that time, the labor market has continued, as has the professional contract economy, in terms of the value of the domestic product. While job growth is now a fraction of what it was at the beginning of this year, the monthly numbers for the last quarter of the year would have been the envy of any time between 2010 and 2020.

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I’m looking forward to the new year

So where does this leave the economy in 2023? Many analysts and economists have been predicting a recession at some point in the next year, but for now, the economy continues to stagnate. One of the reasons why many forecasters are pessimistic is that a sharp drop in inflation leads to a recession as the Federal Reserve’s interest rate hike slows down the economy.

So, the biggest question for 2023, as it has been this year, is inflation. Will it continue to fall, and if it doesn’t, what will the Federal Reserve be willing to do — and willing to risk — to make it happen?

Thanks to Lillian Barkley for copy editing this article.



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