Vijay Chandar, a Morgan Stanley executive director, spoke to RVDA Virtual Convention and Expo attendees through a 30-minute presentation on 2022 economic trends.
Chandar said despite the pandemic and resulting financial burdens, most Americans are in a better financial position than before Covid. Chandar said strong financial positions are due in large part to the several economic stimulus bills that deposited funds directly into U.S. bank accounts. American households accumulated about $2 trillion in savings since the stimulus checks began.
“With the stimulus, income was maintained,” Chandar said. “Personal income in 2020 was the best year of growth in over a decade. With so much of the economy shut, we saw saving rates soar.”
The market strategist said market activity has returned much more quickly following the pandemic than after the 2009 financial crisis. Just five quarters after the prior peak in gross domestic product (GDP) in 2021’s first quarter, the U.S. set a record for total economic output. After 2009, it took four years to reach a new GDP peak. Economic analysts expect the U.S. to reach pre-pandemic growth rates by the end of 2021.
Chandar attributed these trends to Americans maintaining financial stability during the pandemic because of stimulus disbursements. He said the main downside to the stimulus is a risk of higher inflation.
Morgan Stanley is positive on economic growth in the next two years, Chandar said, as the U.S. demographics are favorable with millenials aging. He said the trend should support structurally higher economic growth.
Growth rates peaked in the second quarter of 2021, Chandar said, and attributed the peak to year-over-year comparisons. He noted comparing growth rates in 2021 to a partially shutdown economy in 2020 was easier than comparisons will be in 2022 to 2021.
Chandar forecasted durable goods sectors, such as the RV industry, will see some profits move into service sectors as those open to consumers.
“Bottom line: growth in the new economic cycle is better than last cycle, but in the very near term we should expect some moderation,” he said, noting the economy is transitioning from accelerating growth to more stable growth.
During June, July and August 2021, durable goods tracked 31% higher than the same three-month period in 2019. Non-durable goods were 17% higher in the same period comparison, and services was down 2%, according to Chandar.
The trend could lead to softening demand in durable goods, because of its previous high growth, Chandar said. He said 2021 could have had higher growth if supply chain matters had not interrupted inventory demands.
“Ultimately, as the global economy normalizes, we expect the supply chain to normalize,” Chandar said. “Assuming this, there are two ways this could play out.”
Chandar said the first scenario is if consumers who could not buy large, durable goods in 2021 are willing to buy the product in 2022. The second scenario he said was more likely, which is that as supply returns to normal, demand returns to normal and slows.
He said many consumers in 2022 could either redirect dollars targeted for durable goods or are simply less willing to spend.
“Should the broader economy slow, then there will be even more slowdown by spending,” he said.
Chandar also warned that federal interest rates could go higher, as the Federal Reserve is scaling back its bond purchasing program by the middle of next year.
“The foundation of the economy, U.S. households, is strong,” he said. “Our overall economic outlook is better than the new normal in the 2010s.”