The majority of us would prefer to leave the last two years in the rearview mirror—and we mean that in a big way. COVID-19 has had a severe physical, emotional, and financial effect on us since March 2020. Now, as the year comes to a close, it’s worth taking a look at where we are at the end of this second difficult year.
The recovery began in 2021, after the worst recession since the Great Depression when the GDP dropped by 3.4 percent. The $1.9 trillion American Rescue Plan is expected to have sparked the third wave of government stimulus, which is expected to boost the US GDP by 6% this year. (You’ve probably already forgotten about the two enormous bills approved in 2020: the $2.2 trillion CARES Act in March and a $900 billion relief package in December.)
Millions of families received $1,400 stimulus cheques and child tax credits as part of the 2021 legislation. According to Google Trends, “How to be qualified for stimulus check” surpassed “How to be more beautiful” as the top “How to” search in 2021. In addition to government assistance, the Federal Reserve kept emergency measures in places, such as monthly bond purchases and zero percent interest rates, to keep the economy and financial markets lubricated. The United States’ economy is expected to expand at its fastest pace since 1984, when GDP increased by 7.2 percent, in 2021, thanks to a combination of strong fiscal and monetary policies.
COVID Dynamic: The COVID-19 recession was notable for the severity and speed with which production fell. While most of the nation was quarantined awaiting immunizations, families had a lot of cash on hand—roughly $2.4 trillion in surplus reserves. When the blockades were removed and Americans were given all of that money, they were eager to indulge in their hedonistic habits. The abrupt increase in expenditure took manufacturers off guard, and we were all forced to learn about the supply chain, shipping containers, and logistics all over again.
Inflation is the New Black: Like an old-fashioned fad that reappears, inflation is making a comeback. While the economy is nowhere near to 1980’s peak annual inflation (13.5 percent), prices, as assessed by the Consumer Price Index, are running at a 6.8 percent annual rate as of November, the highest annual rate in four decades.
In testimony before the House Financial Services Committee in July, Federal Reserve Chair Jerome Powell said the economy is in the midst of a “perfect storm of high demand and low supply,” which will pass when the economy returns to normal. While the Fed had maintained that the price increase would be “transitory,” or short-lived, by the end of the year, the central bank had changed its policy to reflect the reality that inflation is likely to last longer than previously thought—and that it would have to change its policy as a consequence.
Workers found themselves in a new position of power as the year proceeded, thanks to the Great Resignation/Labor Market Shortage. Job openings were plentiful, and for the first time in over two decades, many people discovered that they could take advantage of a chaotic labor market.
Home: The housing market cooled down a bit towards the end of the year, but it’s still hot, thanks to low inventories. Unfortunately, prices stay high even as activity declines. The situation should improve as more homes come on the market.
Three-Peat for Stocks: In 2021, you didn’t need to own meme stocks, Bitcoin, or NFTs to make money. The stock market in the United States is on the verge of completing a three-year streak of yearly double-digit increases.