Where Have all the Workers Gone?
At the beginning of the pandemic in April 2020 the economy shed 21 million jobs. In January 2021 the unemployment rate was 6.7% and 10 million people were out of work. Economists believed it would take years for the labor market to heal and the economy to right itself.
Demand for workers roared back much more quickly than anticipated. But instead of having their pick of hires, many former employees decided to retire early, start their own business or discovered they didn’t miss their high-stress and often low paying jobs. The switch to hybrid and virtual offices and the ability to work remotely reduced expenses for many people and opened eyes to the joys of not being tied to an office job. Millions of women forced to stay home and supervise virtual learning and handle childcare turned to careers that could be launched and managed from their home base. Analysts have dubbed this phenomenon The Great Resignation.
Workers were in the driver’s seat most of 2021, feeling empowered to quit because employers were anxious to hire. The resulting labor shortages are impacting a wide range of industries that have relatively low-paid workers, including restaurants, factories, hospitals and retail.
Rounds of government stimulus checks helped the economy recover much more quickly than anticipated and gave people a cash cushion. Meanwhile, the Fed held interest rates near zero and pumped billions of dollars into the economy.
Since summer 2020, the share of the population looking for a job or employed has barely budged. Today there are still 3.5 million fewer people employed than before the pandemic began. However, only about half of those people are actually looking for jobs. Retirements soared, with about 1.5 million more people retiring than anticipated. Meanwhile, workers in high-stress, low paying jobs suddenly had bargaining power and began demanding better working conditions, higher wages and better benefits.
What’s Ahead for the Economy?
The Covid-induced Great Recession of 2020 was both one of the deepest economic contractions in history and one of the shortest.
Economists, who are understandably a little gun shy about making predictions, expect the rebound to continue this year but believe we will return to more normal growth rates. Supply chain pressures, labor shortages, the red-hot housing market and inflation are all expected to persist at least through the first half of 2022. Inflation is expected to eventually settle in at around 3%, still above the Fed’s target level of 2%. According to the Fannie Mae Economic and Strategic Research (ESR) Group, inflation, as measured by the Consumer Price Index, will average 7.0% on an annual basis in the first quarter before slowing to a still-elevated 4.0% by the end of the year.
The Fed has indicated they expect to begin raising interest rates this year, with most economists anticipating three increases of 0.25% each, followed by three more in 2023. The first increase in interest rates is expected to occur in March. Increasing interest rates will further strain housing affordability.
GDP Growth will slow down this but remain above trend, according to Wells Fargo. Much of the above-trend rate of growth in 2021 can be traced to the massive stimulus that was poured into the economy. Direct stimulus checks to consumers, supplements to jobless benefits and expansions of the Child Tax Credit all stimulated consumer spending. Over the past two years, retail sales gained as much as they did in the nine previous years, and households accumulated more than $2 trillion dollars in savings. Wells Fargo projects that as the pandemic recedes, foreign production picks up, ports around the world normalize and some semblance of normal returns to supply chains the economy will grow about 4% this year and about 3% in 2023.
The housing market and economy as a whole are expected to enter a "new normal" in 2022 as unprecedented market pressures stemming from the pandemic ease. The extent to which structural shifts in the economy and housing markets over the past two years will become permanent remains very much a wild card. However, most economists believe that economic growth, home sales and home prices’ growth will slow to a more sustainable pace. The latest forecast from the ESR Group projects home price appreciation will average a still-elevated 7.6% in 2022, down significantly from 2021’s expected pace of 17.3%.
Lumber Prices Rising Again
Following a few months of moderating prices last spring and summer, lumber prices are soaring once again, disrupting the housing market and harming housing affordability.
According to Random Lengths, at the end of 2021 the price of framing lumber topped $1,000 per thousand board feet, a 167% increase since late August. The unprecedented price volatility in the lumber market dates back to April 2020 when the pandemic took hold and sawmills curtailed production in anticipation of reduced demand. When it became clear in the ensuing months that housing had weathered the storm much better than predicted and consumer demand remained strong, lumber mills did not or were not able to ramp up production accordingly.
The slow reaction by sawmills, combined with massive uptick in demand from do-it-yourselfers and big box retailers during the pandemic resulted in lumber prices peaking at a record-shattering $1,500 per thousand board feet in May 2021, before beginning a gradual decline through late August. This most recent lumber price upsurge is due to a number of factors, including ongoing supply chain disruptions, a doubling of tariffs on Canadian lumber imports into the US that added to price volatility and an unusually severe summer wildfire season in the western US and British Columbia.
The current cost of lumber adds more than $18,600 to the price of the average house, according to NAHB’s standard estimates of lumber used to build the average home. NAHB calculates average home price increases based on the amount of softwood lumber that goes into the average new home, as captured in the Builder Practices Survey conducted by Home Innovation Research Labs. Included is any softwood used in structural framing (including beams, joists, headers, rafters and trusses), sheathing, flooring and underlayment, interior wall and ceiling finishing, cabinets, doors, windows, roofing, siding, soffit and fascia, and exterior features such as garages, porches, decks, railing, fences and landscape walls.
Home Design and Decor Trends
This year will see a continuation of many trends born when the pandemic led to sheltering in place and working and learning virtually and resulted in people spending much more time at home. Realtor.com recently rounded up some of the trends they believe are here to stay.
Home Offices. Whether someone’s company has shifted to a hybrid model that allows people to work at home at least part of the time or people left their corporate job and started their own home-based business, home offices are here to stay. People want a dedicated space with privacy, storage and technology.
More Defined Spaces. Realtor.com says that after two years of a lot of togetherness, people no longer want a completely open floor plan, but instead are looking for bonus and pocket rooms, additional living space, finished basements and dedicated play/study space for kids.
Laundry Rooms and Pantries. During the pandemic kitchen storage and laundry rooms became even more important.
Today’s luxurious laundry rooms include built in-storage, slide-out drying racks, washing machines and dryers built into colorful millwork, wallpaper, high-end faucets and sinks, and ambient lighting. For pantries, expect to see organized food and cookware storage and even a “kitchen office” for managing the household.
Pet-Centric Design. Many households either adopted pets during the pandemic or discovered just how important their furry household members were to their well-being. Now they’re worried about leaving them home alone and are creating everything from entry mud rooms and pet washing stations to floor level water taps, built-in food storage and luxe pet “bedrooms.”
Everything Old is New Again. This trend was partially born out of the fact that furniture that used to arrive in two or three weeks now takes several months or isn’t available at all. So many people have taken to shopping resale stores, Craig’s List and Facebook Marketplace to find something unique they can use right now. That’s led to a rash of vintage-inspired designs for everything from furniture to lighting and accessories.
Houseplants are back in style. Indoor greenery is leading to a desire for more light, lots of windows and plant accessories from baskets and bins to macrame hangers. People are also ditching heavy drapes and blinds in favor of letting in more light.
Outdoor Living Space. During the pandemic people took to dining, entertaining, hanging out and even watching movies outside. That’s led to turning outdoor spaces into living rooms, dining rooms, playrooms and kitchens, with comfortable seating and portable heaters (or coolers) and even outdoor media centers.
Returns Eat Into Online Profits
Persistent warnings about supply chain problems and product shortages fueled an early frenzy of online shopping well before Black Friday. Holiday online sales in the US eventually reached a new holiday season high of $205 billion.
Record orders eventually led to record levels of returns. Returns are a retail fact of life; research regularly shows that consumers often plan on returning some of the goods they buy online. Returns processor Optoro says two out of three shoppers will likely return at least one gift received during the 2021 holiday season.
In all, Optoro projects that $120B billion in goods will be returned between Thanksgiving and end of January 2022. Online retailers deal with return rates as much as five times higher than for brick-and-mortar purchases, according to Optoro, a company that manages returns for online retailers. UPS expects to handle more than 60 million holiday returns this season. In a survey, more than one in four people told the carrier they planned to make a return over the holidays. One in five said they'd already done so before Christmas.
In 2021 the cost of returns skyrocketed. Processing the return of a $50 item cost retailers $33, up 59% from 2020, according to Optoro. Costs are rising due to supply chain issues like higher transportation costs, as well as discounting and liquidation losses.
Optoro estimates that more than 5.8 billion pounds of returned goods end up in landfills, because it’s cheaper for retailers to destroy the good than to try and restock them. Sometimes retailers will issue a credit to customers with good purchase histories but tell them to just keep the item and donate it or give it away instead of returning it.
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