Expect unemployment in Illinois and the rest of the country to continue to fall — and then level out — while consumer prices on things like new cars, utilities and even rent continue to rise in 2022, economists say.
Jobless numbers have tumbled and many sectors have bounced back nearly two years after COVID-19 gripped the nation and government shutdown orders quickly followed.
“I do feel unemployment numbers are going to continue — unemployment rates are going to continue to go down,” Labor Secretary Marty Walsh said to the Tribune earlier this month. And while business economists agree, they along with Walsh also say COVID-19 will continue to create plenty of unknowns, especially the omicron variant taking hold.
Walsh said the employment picture will improve organically, but noted that government and private industry must learn some lessons from the supply chain bottlenecks, for instance, and figure out how to expand both manufacturing and the training necessary to get workers into those jobs, he said. That could help eliminate some of the logistical problems we’re seeing now with shipping goods from overseas and getting them into the hands of consumers, economists say.
“We’re … looking at how industry is going to grow in our country,” Walsh said. “You know, consumer purchasing has not stopped,” even as prices have risen, “so we’ve got to make sure we continue the supply chain moving forward. We’ve still got to make goods and products here.”
For now, supply chain woes are expected to continue to drive up consumer prices through at least the first half of 2022. Earlier this year, experts had described monthly jumps in some consumer prices as a blip, but have since taken a longer view.
“Policymakers up until maybe September were saying this increase in inflation is concentrated within a few industries of certain goods — for rental cars and stuff like that; but that comfortable narrative was out the window by October,” said Michael Weber, an associate professor at the University of Chicago’s Booth School of Business, pointing to across-the-board increases in inflation.
In mid-December, the government reported U.S. consumer prices jumped 6.8% over the past year — the highest in nearly 40 years, triggering concerns that the nation may be in for a protracted period of inflation. In Illinois, consumer prices in November jumped 6% from a year ago.
The Federal Reserve’s annual inflation target is 2%.
Curbing inflation
In response to surging inflation, Federal Reserve Chair Jerome Powell announced the central bank will reduce its monthly bond purchases — intended to lower long-term rates — at twice the pace it had previously set and will likely end the purchases in March. That puts the Fed on a path to start raising interest rates as early as the first half of next year, which is expected to tap the brakes on rising prices.
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What’s more, the policymakers collectively forecast that they will raise their benchmark short-term rate three times next year — a significant increase from September, when the 18 officials had split over whether to hike it even a single time in 2022.
The slow and methodical approach means prices will tick up at rates higher than the central bank — and consumers — would like to see, one expert said.
“There’s always a lag and the change of Federal Reserve policy just takes a while to transmit into … making an effective change in the economy,” said Phillip Braun, clinical professor of finance at Northwestern University’s Kellogg School of Management. “So I think we’re gonna see inflation — maybe not what we’re seeing right now — continuing throughout 2022 at some level above 2%.”
With experts blaming the choked supply chain for inflationary pressures, the omicron variant could very well exacerbate the problem if countries have to once again look to shutdown orders in order to curb the spread of the virus.
“It may mean that supply chain bottlenecks are here to stay for a longer period than we were thinking they might be,” said the U. of C.’s Weber.
Employment in 2022
A survey released in early December by the National Association for Business Economics found that its panel of forecasters expects the current unemployment rate of 4.2% to drop to 3.8% by the end of 2022.
While Illinois tends to follow national trends, the state has had one of the highest unemployment rates in the country — even before the pandemic.
Illinois’ jobless rate dropped from its pandemic high of 16.5% to 5.7% in November, according to the most recent federal job numbers for the state. With one of the highest unemployment rates in the country, that’s above the national average of 4.2%. Illinois consistently ranks among the highest when compared with other states, but fared better than California, which had the highest unemployment rate at 6.9%, Nevada at 6.8% and New York, where the jobless rate was 6.6%.
States with higher unemployment numbers tend to have major metro areas with diverse populations, said Braun. Longtime hiring disparities have meant that Black unemployment is higher than average, experts say. Nationally, the unemployment rate among Black residents was nearly 2 percentage points higher than the overall average, at 6.7%.
Chicago’s unemployment rate, which includes data from Naperville and Arlington Heights, stood at 6.2% in November, according to labor department data. The jobless rate was even higher in the nation’s two other largest cities: Los Angeles area’s unemployment numbers stood at 8.9% while New York City’s jobless numbers stood at 9%.
Labor shortages
Labor shortages, too, are expected to persist into the new year as what’s known as the “Great Resignation” continues.
In Illinois, the most recent data shows that workforce participation has fallen by 182,000 between October 2019, when the state’s labor force participation rate was 64%, and October 2021, when it was about 62%, according to the Bureau of Labor Statistics.
“What we’ve seen pretty dramatically over the last couple of months in particular is that labor force participation is actually way lower than before the pandemic and people are just out of the labor force,” Weber said.
Some of that is owed to a wave of early retirements brought on by the pandemic, while others exited to take care of family members. Others decided it wasn’t safe working in high-contact industries like leisure and hospitality.
“Of course having the vaccine widely available in the last year, we thought that might alleviate some of those concerns, (but) there’s a fraction of the population that doesn’t want to be vaccinated. And at some point workers are deciding they just don’t want to be exposed to the virus,” Weber said.
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With the new variant emerging, people who might be thinking about finding a job may instead sit it out.
“So those are also kind of a couple of uncertainties that actually indicate we’ll most likely see labor shortages going forward,” Weber said.
Businesses have been boosting wages to lure workers for months now and it doesn’t look like that’s going to end any time soon, Weber said. For consumers, that may mean forking over even more money for goods and services, something they may not bat an eye at.
“If consumers have high inflation expectations, and actually expect prices to rise then (businesses), of course, have a way easier time passing on the increased costs to consumers,” Weber said.
The Associated Press contributed to this report.
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