22 for 2022: Top Challenges to Ruin Your Sleep

Climb a wall of worry?

Bah!

Here are my top 22 events likely to impact the economy and markets in 2022. No list is complete and neither is this one. Yet, it’ll provide you a framework to consider as we jump forward into the growth opportunities awaiting us in the new year.

Enjoy!

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5 Leftovers from 2021

1. COVID mutations
2. An abrupt Chinese economic slowdown and real estate crash.
3. Rapid stock price appreciation from stimulus and Fed.
4. Rapid housing price appreciation from stimulus and Fed.
5. Sovereign cyber attacks

5 Top of Mind Challenges for 2022

1. Inflation. This is running hot in the United States (PPI 9.2%!) and has increased globally as well. Transitory or not? For manufactured goods, this is likely to be transitory as US demand shifts from goods back to services. For labor, this is unlikely as it’s being built into labor contracts, into COLAs for Social Security and into consumer expectations. And this leads into our #2.
2. Federal Reserve. This week, the US central bank indicated it’s finally beginning to act on our #1 by speeding up the taper of asset purchases and signaling members projections for moving up the 1^st rate hike to May.
3. Labor shortages. This was a big surprise for 2021 as the JOLTs data showed record job openings (11m) and record job quits. Both show a shift in the labor mindset reflective of strong employment demand and a shying away from jobs with low pay in the service sector. Expect more firms to raise pay at the beginning of the year to fill openings with a decline later in the year as consumer spending shifts from goods to services.
4. Supply chain. Rolling Chinese port shutdowns, Vietnam shutting down, dock workers quarantining, a ship stuck in the Suez Canal, Texas Snowmageddon, and Delta/Omicron variants reducing RTO. All contributed to supply chain disruption. It’s unlikely to see the same acuity level in 2022, but there is a June CA longshoremen contract that will need to be negotiated. Not optimistic it will go well.
5. RTO. How many companies over 2021 said they were going back, but never quite made it? Combined with #3, this will continue to challenge the office leasing markets and CRE into 2022. Companies must thread the needle on a 2/3 or 3/2 or 4/1 WFH/RTO schedule. A 20% drop in RTO has massive implications for values. Younger workers hurt the most by not coming back and losing mentorship/decorum opportunities to grow. Related to #1 below, new regulations for buildings will increase costs and reduce construction.

5 Below the Epidermis Challenges for 2022

1. Climate Change. Media is equating every weather event as caused/intensified by the warming of the planet. As we tell clients, it doesn’t matter if you believe in climate change. What matters is that policy makers and investors intensely do. Adapt or die. Watch for UN movement forward on carbon offsets as the driver towards carbon pricing. Expect higher frequency of extreme weather events to drive momentum on regulatory and political change.
2. EVs. Sales of electric vehicles doubled in 2021 and show no signs of slowing down. The Bipartisan Infrastructure spending bill has $5B for charging stations. Should it pass, Build Back Better has $500B in green spending including $42B for greening the federal fleet and alternative vehicles. Related to #4 above, the chip shortage will only grow as more EVs are bought prior to the new US chip factors coming online (2025).
3. AI. The use of artificial intelligence is permeating every business whether they know it or not. It craves efficiency, it destroys redundancies and it engages in creative destruction. While #3 above has record openings, AI will begin to grind these down as firms adapt to high labor costs by deploying AI and increased use of robots.
4. Robots. From burger flipping chefs to battlefield dogs, the advances are growing exponentially. The key advancement of cloud computing has allowed for terabytes of data to be stored and then utilized for robots. The facial advancements in 2021 are truly striking (Ameca) and point the path forward. The early phase will be full of job opportunities and wonderful advancements. The next phase will be military and population control.
5. Metaverse. Like AI and robots, this seems sci-fi until one realizes demand for it was put into hyperdrive by COVID. Too Zoomed out, how about a VR meeting? Can’t go to the concert, how about attending live where your avatar can party with the band? The darker side is related to #4 above, the military and population control aspect. If you want a truly disturbing glimpse of this, watch Altered Carbon on Netflix.

5 Political Events to Watch

1. French election
2. Brazil election
3. US Midterm election
4. Chinese Party Congress
5. UN committee meeting on carbon offsets

2 Outliers

1. Asteroid hitting the planet
2. Country or state allowing autonomous electric vehicles