Expect economic growth to continue in 2022
The U.S. economy is poised to slow in 2022 relative to 2021, but economic growth will continue at a pace that is well above average. That assessment summarizes the year-ahead outlook report by CoBank’s Knowledge Exchange.
Consumers have powered the economic recovery since mid- 2020, a trend that will continue, the report predicts. Consumer spending is expected to rise another 4% to 5% in 2022, and gross domestic product is expected to grow by roughly 4.5%.
Released in early December, the CoBank 2022 outlook report examines these and other key factors that will shape agriculture and market sectors in rural communities throughout the U.S.
GLOBAL ECONOMY: FRAGILE GROWTH
If the global economy is to perform well in 2022, it will do so despite three significant forces: a persistent pandemic, monetary tightening in the U.S. and slowing growth in China. As we enter the third year of the pandemic, the COVID-19 virus is still in control of the world economy and will likely remain so through much of the first half of the year. Nevertheless, strong consumer demand should keep the economy humming.
U.S. ECONOMY: SUPPLY CHAINS TO IMPROVE, INFLATION MIGHT NOT
In 2021, through October, Americans spent 18% more on goods and about 1% less on services than they did in 2019. Compounded by a labor shortage, it is easy to see why supply chains disruptions have become one of the biggest economic challenges of the pandemic—demand has significantly exceeded the capacity of our existing system. Fortunately, CoBank believes we have likely experienced the worst of the bottlenecks, which should diminish in the coming year. Inflation will keep operating and input costs high in early 2022, and businesses will continue to look for ways to pass on those costs.
U.S. FARM ECONOMY: INCREASED COSTS, TRADE BATTLES TO TIGHTEN FARM MARGINS
The U.S. farm economy will continue to struggle with supply chain dysfunction and inflation issues. Historically strong prices will be more than offset by increases in cost for nearly all crop production, including row crops, fruits and vegetables, and hay. CoBank economists do not anticipate any significant pullback in farm-level costs until the third quarter, at the earliest. The expected decline in direct government payments will further squeeze farm income statements. Export sales to China remain the single biggest wildcard for U.S. agriculture.
ANIMAL PROTEIN: LEAN SUPPLIES, STRONG DEMAND
The Bureau of Labor and Statistics’ Consumer Price Index for all meats, poultry, fish, and eggs hit an all-time high in October, up 12% year-over-year. As restaurant and grocery prices adjust, consumer-level meat inflation is likely to continue well into the new year. Tighter cattle supplies, ongoing broiler breeder issues and sow herd reductions should support favorable processor margins through at least the first half of 2022. Although beef exports have been robust in the last few months, the collective U.S. protein opportunity to China may have already peaked.
GRAIN, FARM SUPPLY & BIOFUELS: MIXED OUTLOOK
The grain, farm supply and biofuels sectors enter 2022 facing a mixture of inflationary headwinds, supply chain bottlenecks and high energy prices that present challenges but also a few opportunities. CoBank economists view the short-term outlook as mixed for grain, challenging for farm supply and positive for biofuels. Beyond ethanol, 2022 should see the continued build-out of soybean crushing and soy oil refining capacity to support the expected growth in renewable diesel.
DAIRY: PRODUCER MARGINS TO IMPROVE
Milk supplies in the U.S. and around the world will tighten in 2022 as dairy farmers reduce herd sizes in response to cost inflation pressures. The cross current of resilient domestic and global demand for dairy products with the slowing growth in milk supplies will give an upward lift to milk prices in 2022. Combined with softer feed costs following big corn and soybean harvests, producer margins should finally improve. However, high costs for labor, construction and freight will limit upside margin potential and dampen milk production growth.
RURAL COMMUNICATIONS: COMPETITION HEATS UP
With bipartisan support to bridge the digital divide, the government funding flood gates are expected to open in 2022. The Infrastructure Investment and Jobs Act includes $65 billion in broadband funding, of which $42.5 billion will be allocated to the states to build networks in unserved and underserved areas. Cable operators have enjoyed robust broadband subscriber growth over the last several years due to consumer trends and limited competition from the telecommunication companies. But competition should start to heat up in 2022.
Read the full report at cobank.com/knowledge-exchange.
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