Economic disruptions buffeted the United States in 2022, playing a major factor in the midterm elections and sending jitters through financial markets.
Inflation
The biggest economic story of 2022 was undeniably soaring inflation. Inflationary pressures began building in the latter part of 2021 but began skyrocketing over the summer, pushed higher by rising energy costs.
U.S. inflation, as gauged by the consumer price index, is punching in at 7.1% but has been in decline for the past several months. That is still magnitudes higher than the Federal Reserve’s preferred 2% but below the peak of 9.1% registered over the summer.
While the war in Ukraine and rising energy prices have been a big driver of inflation on the supply side, Republicans contend that Democrats and the Biden administration laid the groundwork for prices to soar by infusing the economy with government spending, which generated excess demand. Meanwhile, some Democrats have argued that corporate greed has pushed prices upward.
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Regardless, the high inflation has been hurting families raising the cost of living. While wages have risen, they haven’t increased enough to keep pace with inflation. Workers are getting paid more dollars than a year ago, but they are also being forced to spend even more to purchase the same goods they did last year.
The big question now is what will happen in 2023. The Fed has been aggressively jacking up interest rates in order to slow economywide spending and cool inflation. Doing so, however, has raised the threat of recession.
Crypto collapses
Bitcoin and other cryptocurrencies had a terrible year, capped off by the massive collapse of FTX and the jailing of its once-venerated founder.
Since punching in at about $50,000 this time last year, bitcoin has shed a whopping 66% of its total value. Ethereum, the second most popular cryptocurrency, is approaching losses of about 69%.
The losses among cryptocurrencies go along with big losses in stock markets this year, suggesting that, rather than serving as a hedge against inflation and overvalued assets, digital currencies are themselves risk assets.
In times of economic uncertainty, investors typically flee risky investments in favor of safer stores of value. Bitcoin and other cryptocurrencies are still a new asset class, and those who have invested in the coins have been selling off their holdings for fear that they will crash, resulting in a chain reaction effect.
But the FTX implosion made crypto’s bad year into a dreadful one. The collapse began in early November, and in just a matter of days, the company was filing for bankruptcy. Founder Sam Bankman-Fried, 30, was then arrested in December.
Housing market careens
The housing market is perhaps the most vulnerable to the Fed raising rates, and throughout the past year, it became clear that housing has fallen into a recession.
In 2021, business was booming for the real estate industry. People were buying and selling in a frenzy as they took advantage of historically low mortgage rates.
The Fed’s rate hikes have dramatically shaped the course of the housing market. The average rate on a 30-year-fixed-rate mortgage has soared from nearly 3% at the start of the year to about 7% a few weeks back, putting home purchases out of reach for many would-be borrowers.
Sales of existing homes have fallen for nine straight months and are at the lowest level since early in the pandemic. Existing-home sales plunged by 5.9% in October to a seasonally adjusted annual rate of 4.43 million, according to a report by the National Association of Realtors released Friday. Sales were down nearly 30% from a year ago.
Goldman Sachs recently slashed its home price outlook for 2023 from about even to down 4%, citing a lack of affordability depressing demand. Others expect outright declines in prices.
“The insane residential prices that peaked during COVID will now come crashing down to reality again. Average and aging homes worth a few hundred thousand dollars pre-COVID that somehow sold like hotcakes for nearly a million dollars during COVID will be no more,” said Baron Christopher Hanson, real estate consultant at Coldwell Banker Real Estate.
Unions make gains
This past year will be remembered as a banner year for organized labor. Earlier this year, an Amazon warehouse in New York became the first to vote in favor of unionizing, an REI store in New York did the same, and a Trader Joe’s in Massachusetts became the first to file for a union election.
Unionization at Starbucks locations exploded in popularity. After a store in Buffalo, New York, became the first to petition the labor board and form a union, since then, more than 300 locations across nearly 40 states have followed suit.
“There is a rise in attention. Unions are now on the radar screens of younger workers to an extent they haven’t been in my career,” Dan Bowling, senior lecturing fellow at Duke University School of Law, told the Washington Examiner earlier this year.
Unions were also in the spotlight as railroads worked to negotiate a new contract with associated unions. The specter of a mass rail strike prompted Congress to intervene and impose a contract on the workers, an action that fueled derision from the populist wings of both political parties.
Student loan forgiveness
Over the summer, President Joe Biden announced a plan in which borrowers who earn under $125,000 individually or $250,000 as a household would have $10,000 in debt relieved, and those who received a Pell Grant could have up to $20,000 canceled.
Critics pushed back, branding the move as a bailout and an egregious example of executive overreach and a way to sidestep congressional approval on such massive spending.
Since then, a number of groups and individuals have sued to stop the debt cancellation. The dispute has risen as high as the Supreme Court, which in December agreed to take up a related case.
ESG in focus
Three letters that grew in cultural and political relevance this year were ESG.
ESG stands for environmental, social, and governance and is a phrase to describe investment principles that take into consideration factors beyond profit maximization, such as how an investment could affect the environment.
Proponents see it as a way for capitalism and investment to create social and environmental change, while opponents have attacked ESG as promoting “woke” and anti-energy policies. Different firms have handled ESG in various ways, but the investment giant BlackRock faced a barrage of attacks from Republicans in 2022.
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Several states have divested their funds from the money manager, with Florida announcing in December that it was pulling a whopping $2 billion from BlackRock. The GOP assault against ESG is likely to continue into 2023 and play a political role as well.
“It’s gonna be part of this national conversation, I think. If you’re at the national level, they are talking about this issue,” West Virginia Treasurer Riley Moore told the Washington Examiner in November.
