Economists from some of the nation’s largest banks expect a buildup of inventory among U.S. businesses this year that could be a harbinger of higher loan demand.
Inventory accumulation is expected to rebound from a decrease of $70 billion last year to an increase of $90 billion in 2022 as supply chain bottlenecks crack open, according to the American Bankers Association’s panel of 16 economists. The expected swing could ease the upward pressure on inflation, another worry for banking executives going into the year.
Last year’s estimated 6.7% annual increase in the consumer price index is projected to slow to 3% in 2022, according to the committee of economists.
The rosier prospects come as banks are poised Friday to begin reporting their fourth-quarter earnings and to provide projections for the coming year, the start of which has seen a spike in the number of COVID-19 cases.
“We do see blue skies on the other side of it,” Ellen Zentner, chief U.S. economist at Morgan Stanley and chair of the ABA committee, said during a briefing with reporters Thursday.
Despite the optimistic tone, the committee of economists confronted lingering uncertainties ahead.
One potential complication is that the surge in COVID cases from the omicron variant could shutter supply chains again before they fully recover, particularly in China, where the government is imposing strict lockdowns.
“We did have a good deal of discussion around omicron,” Zentner said. “One of the concerns was China’s zero-COVID policy, and would that end up in the closure of China’s ports? So far, they’re able to avoid that.”
The panel of economists expects U.S. gross domestic product to slow from an inflation-adjusted 5.5% pace last year to 3.3% in 2022 and 2.3% next year. Some in the banking industry worry about whether the economy can withstand the Federal Reserve’s expected interest rate increases, which could be more aggressive than previously thought.
JPMorgan CEO Jamie Dimon, whose bank is scheduled to report fourth-quarter results on Friday, said this week
The committee of economists was evenly split between an expectation of three or four increases to the Fed’s main borrowing rate in 2022, Zentner said. The panel expects the central bank to begin allowing its balance sheet of Treasuries and mortgage-backed securities to run off in the middle of the year.
One bank represented on the ABA committee, which wasn’t identified, ran models of how this move could impact its own balance sheet and found the result to be similar to two additional rate increases, Zentner said.
The committee also discussed potential fallout from the dwindling prospects of Congress passing a key social policy package and allowing monthly child tax credit payments to expire.
Zentner said the child tax credit payments were “one of the more underappreciated effects on household income.”
Still, the committee expects the U.S. unemployment rate to fall from 3.9% to 3.5% by the end of 2022, which could alleviate some pressures on households that miss out on government assistance.
“We’re knocking on the door of full employment,” Zentner said.
