MT Magazine November/December 2022

ECONOMICS ISSUE

FEATURE STORY

28

market that has seen incredible wage growth. Subsequently, the rate of consumer savings has fallen well below pre-pandemic levels as many people who accrued savings have begun to draw on them to fund further consumption. Conversely, revolving consumer credit balances began to decline in February 2020, and that trend reversed just over a year later. It now exceeds its pre-recession peak. While both savings and credit have allowed continued spending despite high inflation, their impact can only be temporary, whereas rapid wage growth in the exceptionally tight labor market has provided a more sustainable source of funding for continued consumption. Conversely, revolving consumer credit balances began to decline in February 2020, and that trend reversed just over a year later. Demand for Labor Rises Since early 2018, the labor market had been unusually tight, with slightly more than one job available for every unemployed worker. This ratio collapsed at the onset of the COVID recession and has rebounded to a historic level. For several months in a row, there were nearly two jobs for every person who was out of work and seeking employment. The return of numerous jobs lost during the shutdown and resulting recession, as well as new jobs created from manufacturers reshoring production to shorten supply chains, drove the increase in job openings. At the same time, the number of available workers fell, as many have yet to return to the labor force. Labor force participation had been on a downward trend since the onset of the 2008 financial crisis. During periods of recession, people close to retirement tend to leave the labor force instead of seeking employment elsewhere, depressing the participation rate. In 2008, older baby boomers were just shy of

downturn that causes most recessions. While that may sound like a positive spin, an economy afflicted by persistent supply issues can be nearly as painful as one afflicted by a demand driven recession. Since the conclusion of MTForecast, third quarter GDP was published and, as anticipated, showed signs of a growing economy. Inventory depletion, which was a main driver of the negative print in the first two quarters, moderated, and third quarter growth was driven by increases in investment and government spending. In perhaps a foreshadowing of soft economic conditions, the release indicated that consumer spending was decelerating. Up to this point, consumer activity had been strong enough to keep the economy out of recession and will be key in determining if the economy remains growing for the remainder of the year. Consumer Demand Skyrockets Much has been written about the shift in consumer demand that happened at the beginning of 2020. With the service sector nearly shuttered, those who remained employed shifted their demand from services to manufactured goods, beginning the supply challenges that are still felt today. In the early stages of the pandemic, demand for manufactured goods dropped just like the rest of the economy, but as people settled into life at home and federal stimulus plans began to shore up budgets as state governments processed a record number of unemployment claims, demand for goods quickly rebounded. Consumer spending on durable goods exceeded pre-recession levels just four months after the onset of the COVID recession. By comparison, it took over five years for consumer spending on durable goods to surpass pre-recession levels after the 2008 financial crisis. Within a year of the COVID shutdowns, durable goods spending had exceeded the growth realized between the end of the financial crisis and the onset of the 2020 recession. To date, consumer spending on durable goods remains at astronomical levels. Despite inflation, this demand has been propped up by a massive arsenal of savings, increased reliance on revolving credit lines, and an extremely favorable labor