The auto industry’s stalled again in 2021 as it grapples with both the COVID-19 pandemic and shortages of semiconductors and other materials, shutting down assembly lines around the globe.
But the outlook for the U.S. auto industry in 2022 is more promising, according to economists from the University of Michigan, who prepare one of the most influential forecasts used across the auto industry.
The U-M forecasting team notes the outlook for light vehicle production outlook is improving as the semiconductor shortage is starting to ease.
It predicts the light vehicle sales pace will rise to 13.8 million units in the fourth quarter of 2021 and climb all the way to 16.2 million units in the second quarter of 2022.
Higher prices are an issue
Elevated prices will delay the return to the pre-pandemic sales pace nearly 17 million vehicles until 2023, though. The team predicts light vehicle sales total 15.2 million units this year, 16.1 million units in 2022, and reach 17.3 million units in 2023.
Interest rates will probably rise in the middle of 2022, according to the U-M economists, but the price of oil will moderate, making gas more affordable.
Higher energy and food prices are only partially responsible for the headlines around inflation with core Consumer Price Index, or CPI, inflation rising to 4.6%, the highest since 1991. Ongoing supply-chain disruptions, as well as sharply higher apartment rents, imply that consumer price inflation is unlikely to taper off in the near term.
Inflation is expected to ease
The U-M economists expect supply-side disruptions and inflation will ease during the next two years. However, the uncertainties surrounding the pandemic, such as the Delta variant, remain difficult to anticipate at this point, making the economic outlook for the coming year more volatile.
“Aside from the pandemic, the biggest questions for the economy next year are on the supply side,” noted Gabriel Ehrlich, the head of U-M forecasting and director of the University Research Seminar in Quantitative Economics.
“First, will the supply chain get back to normal? Second, will workers start coming back into the labor force in earnest? Both of those developments would boost growth, and they would make the Fed’s job easier as well.”
Ehrlich said if supply-chain strains are resolved faster than they anticipate, the Fed could raise interest rates at a slower pace and fuel faster growth.
The U.S. job market has been recovering despite pandemic waves, inflation woes and supply chain strains, yet those and other barriers could threaten broad, sustained economic momentum.
October saw more than a half-million payroll jobs added — its strongest reading since July — mostly in the service sector and public education. Demand for goods and services is likely to remain strong, albeit with a slight slowdown early next year, leading to continued payroll job gains and rapid declines in the jobless rate.