The 2022 Puzzle - More Questions than Answers

As 2021 draws to a close, many pundits are providing their forecasts for 2022. As I reflect on the past two years, and look ahead to 2022, it is difficult to predict, with certainty, how the New Year is likely to unfold. In fact, unlike prior years, there are more questions than answers. Here are a few items to consider.

Covid-19

Over 200 million Americans and over 20 million Canadians have received their Covid vaccine. Booster shots are now widely available and the eligibility for these shots will be expanded in the days ahead. Vaccines are now available for children. With vaccine, masks and social distancing mandates, many businesses and schools are now open.

Just looking at the traffic on the roads today, as compared to six months or a year ago, life for many is returning to normal, or at least a new and improved state of normal. Early reports on the Omicron virus are suggesting that this mutation may be less dangerous to our health as compared to previous versions. This signals to many that the worst of Covid is behind us.

However, there is another set of statistics that convey a very different message. In official reports, over 500,000 Americans and 30,000 Canadians are contracting Covid daily.  Every day there are thousands of cases in both countries that are not reported. There are millions of Americans and Canadians who have not and will not get vaccinated. Americans have been slow to acquire a booster shot for Covid.

Many people are experiencing Covid fatigue. Several vaccinated people with whom I have spoken have stated that they need to get on with their lives. My sense is that they have convinced themselves that it is now safe to return to a life filled with more social interaction. We are now seeing packed (indoor) basketball and hockey arenas. Many people are not wearing masks.

Another key factor is that we are just entering the winter months. In the northern US states and most of Canada, this will drive people indoors. New variants of the virus and “super spreader” events may provide momentum to the daily number of new Covid cases. In many less- wealthy countries, less than five percent of their populations are vaccinated. Their Covid numbers will continue to rise as many of their unvaccinated citizens contract the virus. In a globally connected world, who knows where the Covid numbers will be in the coming months?

Climate Change

The 2021 Global Conference on Health & Climate Change took place in Glasgow, Scotland in November of this year. The wealthier countries made a number of pledges with respect to methane emissions, the phasing down of some fossil fuels, and increased aid to developing countries. The governments of Canada and the United States have made fighting climate change a key priority. There is lots of work taking place on electric vehicles and electric vehicle batteries. Dates have been set for the conversion from gasoline powered vehicles to EVs. This is all very encouraging.

But there are some countries that are large polluters, such as China, Russia, and India, that have adopted “go slow” processes to tackle climate change. As large polluters, it is difficult to achieve significant global improvements in climate change without their active and aggressive participation.

The side effects of climate change are accelerating rapidly. The scope of the fires and rainstorms we saw in 2021 is unprecedented. Looking at British Columbia, atmospheric rivers dropped extraordinary amounts of rain, repetitively, on cities, towns, and rural areas, burying homes, cars, farms, and animals. About the only prediction we can make with certainty is that the scope of these natural disasters, linked directly to climate change, will get worse in the years ahead.

Will we be able to marshal the financial resources, the personal and political willpower to tackle these challenges and save our world? What is in store for 2022? Nobody knows.

The Future of Work

Profound changes took place in our work lives over the past two years. Many people began working from home; this will likely continue, at least for a designated number of days per week. As many individuals began receiving Covid-related government assistance, they quit their jobs. This is being called The Great Resignation. Many people in service industries (e.g., hotels, airlines) lost their jobs as travel decreased; there were fewer restaurant jobs as companies switched to curbside and delivery service.

Some of these changes will remain temporary while others may be permanent. People are traveling again and going to restaurants. As government assistance dries up, this will force low-income employees to try to re-enter the workforce.

What if Covid cases rise and new mutations of the virus take hold? While lockdowns, vaccine and mask mandates are extremely unpopular, what will happen if there are further outbreaks?

Products versus Services

The requirement for many to work from home coupled with a downturn in demand for travel and going to restaurants and theatres, created an economic shift from the purchase of services to the purchase of goods. Many people bought office furniture and equipment, recreational vehicles, home gyms, hair cutting kits and increased purchases of food from grocery stores. These developments created spikes in demand for freight transportation services and was one cause of inflation.

Are consumers prepared to go back to hotels and restaurants in pre-Covid numbers? What happens if there is another wave of Covid? Will the split between the purchase of goods versus services shift back to the levels seen in pre-Covid times?

Inflation

This has been the worst year for inflation in several decades. Leading economists have said that inflation would be “transitory.” As Covid dissipated, the prices of food, gasoline and housing would revert to pre-Covid levels. Since the governments of Canada and the United States are unlikely to provide financial assistance as a result of the virus, inflation pressures should decrease in quarter 2 of the New Year. The Federal Reserve is likely to take steps to reduce the money supply in order to keep inflation under wraps.

But leading economists like Larry Summers and politicians such as Senator Joe Mancin point to the recent Infrastructure bill signed off by President Biden and the proposed bill to provide money for childcare, climate change and a host of other benefits as adding more fuel to the inflation fire. With the driver shortage in effect in North America, it is difficult to imagine how driver wages and trucking rates will not continue to increase. Will we tame the inflation beast, or will it get worse in 2022?

Supply Chains and Transportation

Supply chains and transportation are the tools that bring goods to market. They keep store and warehouse shelves full and keep the economy moving. Many people were caught by surprise by a trend that has been in the works for many years, the driver shortage.

As we enter 2022, the economy is strong. There are 10 million job openings and there are still many people on the sidelines, even with 4.5% unemployment in the United States.

The retail sector is strong. Manufacturing is solid and should remain that way since inventories are low. New home construction is also robust. There is plenty of freight to be shipped in 2022.  Driver training schools are up and running. Driver pay has increased significantly.

But this will not solve the driver shortage. Keep in mind that the number of people who joined the ecommerce sector has increased from 550,000 to 900,000. Many people want a driving job that allows them to be home at night with their families. Strong demand and tight supply could push the annual inflation rate to over 7 percent and keep the freight transportation very busy in 2022.

As you prepare your budgets for 2022, it is important to weight the factors impacting each of these variables. The risks of volatility in Covid, climate change, inflation and supply chain operations are high. As you read the predictions of the experts, maintain a certain skepticism, and pay close attention to the current status of Covid.

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