University of Arkansas economist Mervin Jebaraj said he believes fears of a coming recession are a “little bit premature” even after continuing worrisome news with the country’s gross domestic product and inflation numbers.
GDP declined 1.5% in the first quarter of 2022 and the inflation rate hit 8.3% in April, numbers not seen in 40 years. But Jebaraj, the director of the Center for Business and Economic Research at UA’s Walton College of Business, said there were promising aspects of the otherwise dreary numbers. He said there was growth in consumer spending and business investments, two important sectors that were “significantly positive.”
“The reason I have confidence that we are not in a slump is by looking at exactly where we had the decline in GDP,” Jebaraj said Friday at CBER’s quarterly business luncheon in Fayetteville. “Consumer spending was actually higher than what happened during Christmas season. Consumers, that is you and I, have been out there in the first quarter buying goods and services.”
Jebaraj said the United States is struggling with GDP for a variety of reasons, including a dramatic decrease in government spending after the COVID-19 pandemic-induced stimulus packages. Also, U.S. export numbers are down because the country’s trading partners are still struggling with the numbing effects of the pandemic.
“Exports are down because we’re growing a lot faster than the people we export our goods and services to,” Jebaraj said. “We are outperforming just about everybody else who is our peer economy.
“There are a lot of headwinds for our economy and a lot of it has to do with what is going on in other countries as opposed to what is going on here.”
Inflation has been a thorn in the country’s side as commercial life has tried to return to normal even as the pandemic continues. Jebaraj said it may be as long as two years before the country can shed itself of the inflationary pressures.
The United States government spent approximately $5 trillion during the throes of the pandemic compared to $800 billion during the 2007-09 recession. The massive influx of money made the pandemic recession short-lived, but caught many businesses unprepared for the return to normalcy because “no one expected the government to spend this much money.”
“We have had significant inflation, I think we can agree to that,” Jebaraj said. “In terms of spending money to get out of the pandemic, the United States has spent more money than any other country. We had [inflation] worse and earlier than other economies because we recovered faster and opened up sooner than other economies.”
Jebaraj said higher prices for airfare, used cars and energy are not as troubling because those are almost directly tied to the pandemic. But the price of everything not caused by the pandemic is more concerning.
“We’ve talked about this being temporary,” Jebaraj said. “Yes, it’s temporary, but temporary is going to last a very long time so that is not anybody’s definition of temporary.”
The disruption of the supply chain has also led to shortages, higher labor costs and higher prices. Jebaraj said that before the pandemic, 70% of American spending was for services — such as restaurants — and 30% was for goods.
When Americans were stuck at home because of the pandemic shutdown, they bought stuff. Lots of stuff. So much stuff that the supply chain couldn’t keep up.
“We sat at home and bought things,” Jebaraj said. “We bought more things than we had ever bought before. Our supply chain was obviously never built to handle us buying as many things as we are buying, which is why there are supply chain shortages and truck driver shortages. Our supply chain is meant to handle us doing things, not buying things.”
The state’s employment numbers have finally returned to pre-pandemic numbers, but almost all of those 15,000 added jobs the past two years came from the state’s robust northwest Arkansas region, centered around Benton and Washington counties. The state’s unemployment rate is just over 3% and the rate in northwest Arkansas is approximately 1% lower.
“Before we pat ourselves on the back, we were adding 15,000 jobs every single year before the pandemic,” Jebaraj said. “We still have a lot more jobs to add. The worst part of this chart is that almost every one of those 15,000 jobs came from northwest Arkansas. It’s great for northwest Arkansas, not so great for the rest of the state. We are still recovering from the pandemic statewide.”