We have survived the complicated, unnerving economy of 2022. But what have we learned?
Inflation emerged as the dominant theme, blanketing itself across millions of businesses and households. These higher prices manifested themselves everywhere, but they did not — at least not yet, it seems — pull the country into a recession. The economic forces were complicated and challenging. We aimed to bring them to life.
Through five vivid dispatches spanning from March until November, our Econ 101 series explored the roots of inflation, higher gas prices, rising rent, and the surging cost of food. But the series also, importantly, shed light on how the labor market could prove resilient and prevent inflation from dragging the economy into a recession. That labor market is now under new duress.
Chapter 1 | March 16
Inflation: How prices took off.
Over the past two years, the U.S. economy has faced its biggest challenges in a generation on multiple fronts. It contracted too fast. Then it grew too quickly. This forced millions of Americans to live through something they never have before: a period of high inflation. Our guide, published in March, explained what caused prices to take off.
What’s happened since: Prices have continued to go up, spiking during the summer. The Federal Reserve raised interest rates multiple times in 2022 in an effort to slow inflation. There are signs that inflation might be cooling, but it is taking much longer than many people expected. There are a couple of reasons inflation has remained high for so long. One reason is because Russia’s invasion of Ukraine distorted energy and food markets. Another reason is that consumers continued spending money at high rates despite elevated prices.
What’s next: Many analysts say inflation will continue to cool, potentially reaching more normal levels toward the end of 2023. This inflationary stretch has been painful for many households and businesses, however. The Fed has begun showing signals that it could soon begin slowing the pace of interest rate hikes. They are concerned that if they raise interest rates too much, it could lead to a recession.
Chapter 2 | June 1
Pump Shock: How gas prices drove us to the brink.
Rising inflation, a growing economy, people returning to offices, and a surge in people hitting the road for long-overdue trips helped push gas prices up near record levels. Making matters worse — a lot worse — was Russia’s invasion of Ukraine. Russia is the third-largest exporter of energy in the world, and the U.S. and European allies moved to punish Russia by limiting imports. This pushed up prices for everybody, particularly around the summer driving season.
What’s happened since: Gas prices rose from $2.53 in February 2020 to $5.01 on June 13, 2022. This dynamic pushed President Biden’s poll numbers toward the lowest levels of his time in office. But prices soon started falling sharply and supply increased. The White House moved to release oil from the Strategic Petroleum Reserve, and some major production facilities ramped up capacity. By the November midterm elections, gas prices averaged $3.80, according to AAA. That’s still uncomfortably high for many people, but it’s nowhere near where it was just a few months earlier.
What’s next: The White House says they want to keep exerting pressure on energy companies to lower gas prices, and Republicans have said a key part of their agenda in 2023 is to boost U.S. production so that there is more domestic supply. It’s unclear if either political party will have all that much power when it comes to energy prices. Bigger factors will likely be the extent of Russia’s involvement in Ukraine and the broader direction of the global economy. If the global economy slumps, gas prices will probably fall even more.
Chapter 3 | July 28
What causes a recession?
During the summer, when gas prices were extremely high, there was a growing sense that the United States would soon enter a recession. Many people thought the U.S. might already be in a recession. But what, exactly, is a recession? That’s what we aimed to explain. Recessions are a type of economic contraction usually caused by a chain of events. In this case, the Federal Reserve raised interest rates, which led the stock market to fall, which led consumers to become gloomy about the economy. In some cases, there were signs consumers might start pulling back on spending, which would be one way to guarantee a recession was coming.
What’s happened since: The final domino to fall, though, was layoffs. Just when it appeared a recession seemed imminent during the summer, the labor market kept revving and employers kept hiring hundreds of thousands of people each month. With an extremely low unemployment rate — at one point it was 3.5 percent — consumers had plenty of income and didn’t need to pull back on spending as much as many economists had feared.
What’s next: Large-scale layoffs have begun in the past few weeks, mostly focused on the technology sector. Facebook, Twitter and Amazon have begun cutting thousands of workers. If this spreads from the tech sector to other parts of the economy, it could be the final domino to fall in a recession. But if the layoffs remain contained to just this one industry, it’s possible the economy will continue to grow.
Chapter 4 | Sept. 1
Why is rent so high?
As inflation unexpectedly picked up new momentum in the second half of 2022, housing costs emerged as a huge burden for millions of renters. Many were priced out of the white-hot housing market, and so they had to compete against more people to rent apartments or houses in virtually every corner of the country. There were many reasons for this, including that there was not enough supply to meet demand. And people were using the pandemic as an excuse to move and relocate, which caused a lot of volatility and in many cases created more competition for units.
What’s happened since: There are signs rental prices might finally be stabilizing, and prices fell in many markets in October on a month-by-month basis. That could bring welcome relief, particularly for people who are finding themselves priced out of the housing market by rising interest rates.
What’s next: With high interest rates and a cooling housing market, the rental market remains at risk of big changes. But as inflation appears to be cooling, that should continue to bring rental prices back toward a more normal level.
Chapter 5 | Nov. 10
Food prices jumped in 2022, but there were different reasons for different products. An avian flu outbreak pushed up the price of turkey and chicken. Heat waves and droughts in Idaho pushed up the cost of potatoes. Bread prices jumped because wheat exports were delayed by the war in Ukraine. Labor shortages, meanwhile, have pushed up the price of dairy products. Each item seemed to have its own issue, which drove up costs across the board.
What’s happened since: Millions of Americans felt the pinch of inflation at grocery stores and restaurants, but people kept spending money. There is evidence that shoppers adjusted their behavior, opting for less-expensive alternatives in the meat or produce aisle, for example. This kind of behavior will probably continue until price increases level off.
What’s next: There are so many different dynamics driving up food prices that it’s hard to know when things will stabilize. But a number of experts say that food-price inflation is peaking, and there’s a chance that prices might actually fall in 2023.