Economic Outlook U.S. Q2 2022: Spring Chills

U.S. economic activity remained largely healthy through early March, based on our real-time indicators. Omicron infection rates subsided and restrictions were removed, allowing more people to get outside and spend. While COVID-19 appears to be in the rearview mirror (for now), the Russia-Ukraine conflict worsens already troubling pricing pressures tied to continued supply-chain disruptions. The impact on the U.S. economy is relatively moderate when compared to the pain felt in countries closer to the center of the storm, but ramifications are still noticeable. We expect the economic damage to lower U.S. GDP growth to 3.2% this year, matching our preliminary forecast in early March but a full 70 bps lower than our November forecast of 3.9%. The main drivers for

...GDP growth: Omicron appears to be in the rearview mirror (for now), replaced by the impact on economic activity from the Russia-Ukraine military conflict. As supply-chain disruptions worsen, prices climb, and the Fed frontloads interest rate hikes, our U.S. GDP growth forecast is 3.2% for 2022 and 2.1% for 2023 (from 3.9% and 2.7%, respectively). Supply chain: Supply-chain disruptions, worsened by the Russia-Ukraine conflict, remain the largest stumbling block for the U.S. economy. Extreme price pressures will likely last well into 2022 before decelerating and falling below target in 2024. Labor force: Unemployed workers are quickly finding jobs. However, the decline in labor force participation, particularly for prime-age workers, is an issue. As the COVID-19 impact lessens, we expect the labor participation rate to climb to 62.7% in 2023, from 62.3% in first-quarter 2022, closer to its 2019 average of 63.1% but still a 45-year low. Unemployment: The unemployment rate is just over its...

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