QC economy grew in 2022, but challenges remain in 2023

The Quad Cities added 6,000 jobs in 2022 and saw millions of dollars in business investment despite ongoing economic challenges.   And while overall employment was flat in the U.S. and the local region in the fourth quarter, economic growth continued at just under 3% and inflation slowed – which, along with other key indicators, suggest […]

The Quad Cities added 6,000 jobs in 2022 and saw millions of dollars in business investment despite ongoing economic challenges.   And while overall employment was flat in the U.S. and the local region in the fourth quarter, economic growth continued at just under 3% and inflation slowed – which, along with other key indicators, suggest a feared recession may not materialize.  Those were among the key findings in the latest market report written for the Quad Cities Chamber of Commerce by Kenneth A. Kriz, distinguished professor of public administration at the University of Illinois. Mr. Kriz said he based his Q4 Regional Market Summary – which covers the final three months of 2022 – on actual, trend and projected national GDP growth, employment numbers and other indicators of long-term growth.

Though analysts are warning of “the impending recession that many of them think is inevitable,” Mr. Kriz said that he and others are far less certain. “A recent Wall Street Journal survey of 66 economists put the average probability of a recession at 61%,” he noted. “This was just slightly lower than the reading in the October survey. The level of commentary by some economists has been what one could describe as dire, warning of a ‘Wile E. Coyote’ moment when the economy realizes that it has no firm ground under it.” There is, for example, evidence to suggest that “what many economists fear may never materialize in any significant form,” he added. The state of the U.S. economy today “is at least somewhat strong,” Mr. Kriz wrote. In the fourth quarter of 2022 economic growth as measured by Real GDP continued at a nearly 3% annual rate despite the Federal Reserve’s multiple increases in short-term interest rates. Personal consumption expenditures also grew at over 2% and gross private domestic investment grew at 1.4%, he said. While inflation reached its highest level in decades in 2022, it also showed signs of easing at the close of the year, Mr. Kriz wrote. And “job growth nationally and locally remained quite strong, reflecting the solid recovery from the COVID-19 recession.” Economists also worry that rising interest rates will “dampen business activity and economic growth in general,” and, he said, “they point to metrics that indicate that the money supply is falling rather dramatically.” Those economists also point to a potential flip in the so-called yield curve – which records the difference between short-term and long-term interest rates. An inversion, or a reversal of traditional patterns, happened in July 2022, which is when economics first began predicting recession. Despite all those monetary pressures, however, personal spending – the largest component of the economy – continues to grow, his report said. In addition, though economists worry that there has been no new significant infusions of government stimulus money, those earlier dollars are still being invested in the nation and the region's economy. Mr. Kriz did warn that there is still uncertainty on the horizon for the U.S. and the Quad Cities in 2023. Growth forecasts are positive, he said, but lower than last year and could continue to be impacted depending on how much more the Fed raises interest rates in 2023. Nationally, the chamber report said, the labor market continued to grow at steady rates. While jobs in the Quad Cities region were flat overall in Q4, the job market is still strong in the region – the unemployment rate fell slightly in Q4 from 3.9% to 3.8% indicating near full employment. But  there is some evidence of softening.  Average hourly earnings in the region also fell slightly from September to December. “In the face of relatively high consumer inflation, wage growth in the region is not keeping pace with the cost of living,” Mr. Kriz added. Locally, on the employment front, the Quad Cities added 6,000 new jobs in 2022 and during the fourth quarter, total nonfarm employment peaked at just over 191,000 jobs, exceeding the high of 188,000 jobs before the COVID-19 pandemic. Leading the way in that regional growth was local, state and federal government employment, which recorded a 10.5% increase in jobs. Leisure and hospitality also was up 9.5% and manufacturing was up 4.2%. The area’s largest job category – trade, transportation and utilities – increased by 3.9% last year. The unemployment rate at the time of Mr. Kriz’s report, stood at 3.7% in the Quad Cities Metropolitan Statistical Area (MSA).  “Unemployment rates below 4% are an indication that the labor market is fairly tight and that there is likely to be competition for workers, potentially driving up wages,” he writes. “Compared to the rest of the country, however, wages in the Midwest remain competitive. Both wages and benefits remain below the national average for most occupations.” Meanwhile, also in 4Q, the Quad Cities Chamber reported working on 28 business attractions and three business retention and expansion – 85% of which were related to the agricultural innovation and manufacturing industries. It also provided 1,432 technical assists to businesses and celebrated the groundbreaking of a project that will double the size of PCT Ebeam and Integrations. The electron-beam technology company, which has an international reach, also will add jobs thanks to the expansion of its existing 30,000-square foot facility at 8700 Hillandale Ave., Davenport. The expected total annual economic impact on the Quad Cities regional economy is $4.2 million. Throughout the past year, Mr. Kriz writes, “one of the dominant economic stories of 2022 was the nationwide surge in inflation which began in 2021 as the economy recovered from the COVID recession. As many economists predicted, the unprecedented amount of economic surplus led to pierce increases in nearly every sector of the economy and every region of the country.” Overall inflation in 2022 was 6.4% while the price increases have not been uniform across sectors, he added. For example, food, fuel oil, natural gas and transportation services all saw double digit inflation. As for those recession fears? “In the end, we simply recommend caution going forward,” he said. “The number of variables that could negatively or positively affect the economic situation has multiplied. In just the past few days, the U.S. has shot down at least one balloon believed to have come from China and believed to have been conducting spying on the U.S. “Increased tensions between the two countries could have a detrimental effect on economic growth. On the opposite side, recently announced advances in Artificial Intelligence may have a positive effect on growth through the harnessing of these innovations to improve productivity.”