Brice Wallace
Wage growth of 4.8 percent may sound good, but not if you’re an employer and not if it lags inflation.
Those are some of the informational nuggets provided during the recent Zions Bank 2022 Economic and Market Outlook Webinar. Inflation and its ripple effects throughout the economy were common themes during the event, as spelled out by Robert Spendlove, the bank’s economic and public policy officer.
For example, wages nationally saw year-over-year growth in November of 4.8 percent, ahead of the 2.7 percent growth seen since 2007.
“That’s great if you’re a worker, but this is having a huge strain on employers,” Spendlove said. “It’s squeezing their margins. And their only solution, if they have to pay these kinds of big wage increases, is they have to raise their prices to make up for this. So this is what we’re seeing.”
Inflation hit 6.8 percent in November, a 40-year high and far above the Federal Reserve’s target of 2 percent.
“There was a disagreement among economists about whether this inflation was temporary or more persistent,” he said. The Federal Reserve referred to the inflation as ‘transitory’ and expected it to be gone by last fall. “But it’s continued to accelerate.”
Wage increases of 5 percent are “still not keeping up” with inflation, he said. “So the fear is that if we continue to have wages chasing inflation, it can start this spiral where it starts to cause inflation to spiral out of control.”
Another pain point is that producers are seeing their costs rise, to the tune of 9.6 percent in November.
“If you think about the price pressures on producers, if they’re seeing a 9.6 percent increases in costs, they have to pass those prices along,” Spendlove said. “So at least in the short and intermediate term, I’d say over the next few months, we will continue to see inflationary pressures increase as we see costs for producers and supply chain problems persisting.”
The Mountain States region has been particularly hard-hit by overall inflation. The national figure is 6.8 percent, but it’s 7.7 percent in the region. For items except for food and energy, called “core” inflation, the increase of 6.3 percent in the region tops the national figure of 4.9 percent. Inflation on food is 5.5 percent in the region, better than the U.S. rate of 6.1 percent, and motor fuel cost increases are about the same, at about 58 percent.
Rent inflation nationally sits at 3.5 percent, but it’s 7.5 percent in the region. Inflation for services is 3.8 percent nationally but 5.3 percent in the region.
Despite the troubles with inflation, the region’s economy remains “very robust.” Utah and Idaho are seeing strong population growth and for many months were the only states adding jobs. Utah has been adding jobs in all industries. Even natural resources and leisure and hospitality, which had been lagging, are rebounding, and Utah’s unemployment rate is a mere 2.1 percent, second-lowest behind Nebraska’s 1.8 percent and half of the national 4.2 percent rate.
What’s more, Utah’s labor participation rate is rising. “What this means is the economy is so strong that it’s pulling people back off the sidelines back into the labor market, which is a very strong sign,” Spendlove said.
Nationally, the labor force participation rate was 61.8 percent in November and hasn’t recovered from the pandemic and no one has figured out how to get people back into the labor force, he said.
“It’s just kind of stalled out just below 62 percent. This is the problem right here,” Spendlove said. “We need to get that labor participation back up to where it was pre-pandemic, but it just continues to stick right at that lower level.”
The national job losses experienced during the pandemic have yet to rebound. While 18.5 million jobs have been regained through October, that’s still down 4 million jobs compared to the whopping 22.4 million jobs lost in the spring of 2020. “That is kind of hindering the ability of the economy to kind of come back and fully recover,” Spendlove said.
The country still has 11 million job openings, exacerbated by 4.5 million workers quitting their jobs.
Spendlove said the overall economic environment is “very unique” and that the uncertainty seen during the past two years likely will continue. While GDP is back above pre-pandemic levels and “we’re seeing a lot of economic growth,” consumer sentiment remains low as people are concerned about the economy’s health.
“There is kind of a disconnect,” Spendlove said. “The economy is doing well, but consumers don’t feel like the economy is doing well.”
Scott Anderson, Zions Bank’s president and CEO, said 2021 “brought both highs and lows in markets and the economy, and we’ve seen many of these trends carry over into this year.” The pandemic and its variants continue to cause uncertainty, “however, the economy remains strong and is expected to continue its growth trajectory over the next year,” he said.
“The ongoing effects of the pandemic continue to complicate the outlook for 2022, but the economy and markets remain fundamentally sound in our country and especially in our region,” Anderson said. “Idaho and Utah have led the nation in economic and demographic growth and will continue to thrive in 2022.”
