The U.S. Economy and Inflation in 2023
Kevin M. Bahr CBEI Chief Analyst; Professor of Business School of Business and Economics
Overview No economic issue was more politicized in the November elections than inflation. It was one of the most important issues to voters, and the most important economic issue. In a rare show of unity, both Democrats and Republicans agreed that inflation was a problem. However, specific short-term solutions to current inflation were more problematic for politicians to identify. While the Federal Reserve began raising interest rates in 2022 to reduce consumer and business spending, legislative actions that would immediately curtail inflation were difficult. There is a reason for that. Inflation is not simply a U.S. problem caused by U.S. policies; it is a global problem created by global factors. Inflation was the top global, economic problem in 2022. U.S. inflation peaked at 9.1% in June but has remained stubbornly high. In October, inflation fell to its lowest rate in 2022, but was still at 7.7%. Although inflation remains a problem, the 2022 job market has been incredibly strong. In October, there were 153.3 million Americans working, more than at any other time in the history of the United States. The unemployment rate was less than 4.0% since February, and the number of job openings was consistently at near record highs throughout the year. The job market has robustly recovered from the April 2020 COVID driven record high unemployment rate of 14.7% when only 130.5 million were employed. Economic growth cooled significantly in 2022. The 2020 economic decline caused by COVID was record breaking, as was the post-COVID economic recovery. After declining 4.6% in the first quarter of 2020, economic growth dropped a record 29.9% in the second quarter. The decrease was the worst quarterly decline on record since the Bureau of Economic Analysis (BEA) began tracking quarterly economic growth in 1946 and was much greater than the worst quarterly decline of 8.5% during the financial crisis in 2008. The record drop in economic growth in the second quarter was followed by record growth in the third quarter, as the economy grew at an annualized rate of 35.3%, the highest quarterly growth on record. Although the economy rebounded in the second half of the year, overall economic growth in 2020 declined 2.8%, the largest decrease in annual economic growth since 1946. During the financial crisis the largest annual economic growth decline was 2.6% in 2009. The strong economic growth that returned in the second quarter of 2020 generally carried through 2021. Annual GDP growth in 2021 was 5.9%, the strongest annual growth since 1984. Economic growth was mixed in 2022, with growth returning at a 2.6% rate in the third quarter following declines of 1.6% in the first quarter and 0.6% in the second quarter. Inflation – Global Factors and the Russian Invasion of Ukraine The table on the following page shows the annualized inflation rate for Europe, the United Kingdom, Canada, and the United States in 2022 compared to April 2021. Note that the trends in price increases are similar across most countries, with relatively low inflation in April 2021 transitioning to relatively high inflation in 2022. The trends are similar across countries because global factors have impacted global prices. Record levels of inflation were recorded for the United States, the Euro Area, Canada, and the United Kingdom.
Central Wisconsin Report - Fall 2022
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