At the outset of 2022, the COVID-19 pandemic had finally loosened its grip on our activities, and global supply chains began healing, offering the promise that economic life would return to its pre-pandemic rhythm. Then in February, Russia invaded Ukraine and overturned our expectations. Vladimir Putin’s tank columns had a seismic effect on people’s finances half a world away in the U.S., setting off financial chain reactions that are still reverberating. Western sanctions against Russia cut the world’s third-largest oil producer out of the market, sending the price of crude soaring, and with it, gasoline. Ballooning gas prices meant higher inflation, and higher inflation meant the Federal Reserve had to raise interest rates more aggressively in an attempt to clamp down on it. Those higher interest rates led to soaring mortgage interest rates, which have smothered the housing market. Nervous investors pulled their money out of the stock market and cryptocurrencies, sending the prices of stocks and bitcoin plunging. Many economists now think the conditions are right for a recession in the near future. Despite all this, some of the pandemic’s economic scars continued to fade throughout the year. The economy recovered all the jobs lost when COVID-19 hit in 2020, and employers continued to hire. Shoppers continued to ramp up their spending, undaunted by higher prices for life’s necessities. Here’s what 2022 looked like through 18 of the most compelling data metrics The Balance could chart.
Inflation
If there was one phenomenon that impacted people’s finances in 2022, it was inflation. We’re paying a lot more for basic things these days than we did a year ago. Gas prices shot up quickly in the wake of the Russian invasion. Prices have been up and down since then, but by the end of the year, they had returned to pre-invasion levels. Still, it’s worth keeping things in perspective—even at 2022 highs, gas was actually costlier in the past if you take inflation into account. Gas wasn’t the only thing that saw rapid price hikes. The cost of food, especially groceries, rose dramatically, to the point where some people began to wonder whether it was worth cooking at home instead of eating out anymore. Overall inflation reached a high point in June, with those food and gas price spikes leading the way. A bright side for all those price increases? The Social Security Administration announced that beginning in December, benefits recipients will receive their biggest raise since the 1980s. The second half of the year saw a gradual cooling of inflation as supply chain backlogs cleared and the Federal Reserve continued its aggressive campaign of anti-inflation interest rate hikes. Still, price increases remained well above the Fed’s 2% target.
Spending
Many economists thought the Fed’s interest rate hikes, which increase borrowing costs on all kinds of consumer loans, would discourage consumer spending, giving supply and demand a chance to rebalance. Instead, consumers simply put more on their credit cards. Continued spending in the face of higher prices meant many people were draining the savings they built up during the pandemic. While people continued spending, they didn’t necessarily buy the same things as they had in the past. Compared to a year earlier, people racked up more purchases at bars and restaurants, and spent less on electronics and appliances. And the changes in spending on those categories outpaced the changes in prices, meaning it couldn’t all be explained away by inflation or deflation.
The Housing Market
Just as inflation hit a turning point in 2022, so did the housing market. At the outset of the year, prices were still skyrocketing. By June, they were 42% higher than before the pandemic. To some experts, the rampant home price increases of the pandemic era looked an awful lot like a bubble—and one that was beginning to burst. An early alarm came late last year from the Dallas Fed’s measure of “exuberance” in the housing market (that is, how much houses were selling for compared to what fundamental economic measures like income and housing supply would dictate). The exuberance meter shot up rapidly in 2022. Wildly higher mortgage rates—a result of the Fed ratcheting up its benchmark interest rate—made mortgages so unaffordable that many buyers dropped out of the market, sending sales plunging. Many people who did buy turned to adjustable-rate mortgages (ARMs) to save on their payments. This type of mortgage had fallen out of favor during the pandemic, when fixed-rate mortgages were dirt cheap. This summer, more sellers began to cut their asking prices. And at long last, overall prices began to fall.
Jobs
In 2022, the job market reversed the damage done by COVID-19’s onset, with the number of jobs climbing above pre-pandemic levels. It was a stunningly fast recovery by historical standards, compared to previous downturns. The workforce also got back to its pre-pandemic size. Signs of weakness in other parts of the economy didn’t discourage employers from hiring and holding on to their employees. Layoffs remained scarce. But there may be storm clouds on the horizon. The Fed’s campaign of interest rate hikes risks slowing down the economy so much that layoffs ensue. In the past, workers have paid the price for restraining inflation, with price increases typically subsiding only after the unemployment rate rose. By October, the pace of job growth had slowed to its lowest all year. Many economists are banking on job openings continuing to dry up and layoffs increasing in 2023, as the economy enters a “mild” recession. But as 2022 showed, economic forecasts have a way of going sideways in the pandemic era. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com. With an Application to House Prices.”
