The U.S. economy will continue to improve, say the nation’s purchasing and, supply management executives. This expansion, detailed in the December 2021 Semiannual Economic Forecast. will continue a growth trend that began in June 2020.
Revenues are expected to increase in 15 of 18 manufacturing industries and 17 of 18 services-sector industries. Capital expenditures are expected to increase by 7.7% in the manufacturing sector (after a 12.1% increase in 2021) and increase by 10.3% in the services sector.
The manufacturing employment base is expected to grow by 1% following an increase of 3.3% in 2021. Compared to the first half (H1), growth in the second half (H2) of the year is projected to cool slightly in manufacturing and accelerate in services.
Meanwhile, Vanguard, the investment behemoth, anticipates slower growth, regardless of supply-chain dynamics. In both the U.S. and the Euro area, Vanguard expects economic growth to normalize to 4%. In the U.K., Vanguard expects growth of about 5.5%, and in China, expectations are that growth will fall to about 5%.
Vanguard expects labor markets will continue to tighten, with several major economies quickly approaching full employment. Vanguard estimates the cyclical effects of supply constraints will persist well into early 2022 and then normalize as the structural deflationary forces of technology and unemployment take hold again. These factors contribute to expectations that inflation will trend higher for some time before slowing in the second half of 2022.
Vanguard’s long-term outlook for global asset returns for 2022 and beyond remains guarded, particularly for equities where valuations are high and low real interest rates continue to act as a strong gravitational pull on future returns. Importantly, investors should not fear a “lost decade” for U.S. stocks, but rather, a lower-return one. For fixed income, low interest rates mean that investors should expect lower returns. However, because rates have risen modestly since 2020, Vanguard’s outlook is commensurately higher.
Here are Vanguard’s 10-year annualized return projections:
- Global equities: 5.2% – 7.2%
- U.S. equities: 2.3% – 4.3%
- Global bonds: 1.3% – 2.3%
- U.S. bonds: 1.4%– 2.4%
“While the economic recovery is expected to continue through 2022, easy gains in growth from rebounding activity are behind us, and policy will replace health as the leading consideration for investors,” said Joe Davis, Vanguard’s global chief economist.
So, what does this mean for bev/al marketers? Continued sales expansion, powered by premiumization, and volume growth, too. There will be plenty for everyone — mainstream brands, craft brands and super-premium ultra-luxury brands.
The only downside will be when the Federal Reserve “takes away the punch bowl.” But even that will work to benefit the bev/al industry, with top-shelf beer, wine and spirits once again playing the role of an affordable luxury.