The national economy should grow 6.9% in the fourth quarter, but disruptions caused by the Omicron virus variant will stifle economic activity at the start of 2022, according to the UCLA Anderson Forecast, a quarterly forecast from the university’s Anderson School of Management.
"For the first quarter of 2022, the UCLA Anderson Forecast has now adjusted its forecast to 2.6% growth from the 4.2% predicted in September, based on the assumption that Omicron might be disruptive, while acknowledging that its effects cannot be predicted," said a press release today that announced the forecast results.
But university forecasters don't expect Omicron's impact on the economy to last long.
"Overall, the national forecast is for continued strong economic growth and labor market recovery, with a lessening of supply constraints and inflation," the release said. "A more severe Covid-19 wave caused by the Omicron variant could temporarily derail the forecast, but it's still too soon to tell."
The quarterly report noted that the arrival of the Omicron Covid variant arrived too late in the year to have a significant impact on economic activity for the fourth quarter. As it stands, the report said, the U.S. economy is on course to grow 6.9% in the last quarter, which would be the highest growth rate for the year.
The forecast's expectation for a slower first quarter 2022 is based on the likelihood that there will be a winter surge of Covid-19 cases, leading to a temporary cut in consumer spending on in-person services. But the school's analysts expect that the U.S. economy will recover quickly.
"The forecast for the second quarter of 2022 calls for stronger growth than previously predicted, as the economists expect in-person service consumption to rebound," the report said. "For the third and fourth quarters of 2022, growth is forecast at 4.6% and 2.4%, respectively."
The report's conclusions were based on the rapid pace of job creation in the U.S., said Leo Feler, a senior economist at the UCLA Anderson Forecast, in the press release. About one million jobs were added per month in June and July, and 200,000 to 530,000 per month have been added since then. That growth was enough to bring down the national unemployment rate from 5.9% to 4.2% in November, the report noted.
The UCLA forecast is predicting that between about 200,000 to 400,000 jobs will be added to the economy each month during 2022.
The report found that the nation is still facing a labor shortage, with the labor force participation rate standing at 61.7%, where it had been 63.4% before the emergence of Covid-19. That equates to about 3.1 million fewer workers in the labor force, according to the report, which added that the labor shortage has been compounded by the fact that fewer workers are holding multiple jobs since the start of the pandemic.