CoBank Releases 2022 Year Ahead Report – Forces That Will Shape the U.S. Rural Economy
T
he 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. Consumers have powered the economic recovery since mid2020 and that will continue in the coming year. Consumer spending is expected to rise another 4 percent to 5 percent in 2022 and GDP is expected to grow by roughly 4.5 percent, according to a comprehensive year-ahead outlook report from CoBank’s Knowledge Exchange.
U.S. Economy: Labor and Supply Chains to Improve, Inflation Might Not The pandemic has significantly altered how our economy functions, with the greatest impact coming from what we consume. Through October, in 2021 Americans spent 18 percent more on goods and about 1
percent less on services than they did in 2019. Compounded by a labor shortage, it is easy to see why supply chains have become one of the biggest economic challenges of the pandemic—demand has significantly exceeded the capacity of our existing system. Fortunately, we have likely experienced the worst of the bottlenecks, which should diminish in the coming year. For most consumers and businesses, a key focus in 2022 will be tackling the effects of inflation. Operating and input costs will remain high for businesses in early 2022, and they will continue to look for ways to pass on those costs to consumers.
Monetary Policy: Tough Fed Decisions Approaching The coming year will hold perhaps some of the most challenging monetary decisions that the Federal Reserve has faced in over a decade. Chair Powell has acknowledged that inflation could remain elevated well into 2022, and the Fed is now expected to accelerate the tapering of its monthly securities purchases. The Fed will want to extend the economic recovery as long as possible before raising interest rates. But it will also be cognizant that the longer inflation remains elevated the higher the
likelihood that it leads to a perpetuating cycle of higher prices and higher wages.
U.S. Farm Economy: Increased Costs, Trade Battle with China to Tighten Farm Margins The U.S. farm economy will continue to struggle with the ongoing supply chain dysfunction and cost inflation issues that emerged in the summer of 2021. Historically strong prices will be more than offset by increases in cost structure 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 Q3, at the earliest. The expected decline in direct government payments in 2022 will further squeeze farm income statements. The single biggest wildcard for U.S. agriculture is export sales to China, currently the largest export market for U.S. farm products.
Grain, Farm Supply and Biofuels – Inflation, Volatility Create Mixed Outlook The grain, farm supply and biofuels sectors enter 2022 facing a mixture of inflacontinued on page 20 >>
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