Making sense of the latest economic trends and what it means for healthcare.
August 2022 – The Journal of Healthcare Contracting
You’ll have to forgive Economist Alan Beaulieu for not being rattled over the latest breaking news and headlines related to the economy. His company, ITR Economics, has provided business leaders with economic information, insight, analysis, and strategy since 1948. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the United States.
“Right now, there is a lot of fear in the news and in people’s minds, mostly caused by inflation and high prices that seem destined to go on and on and on,” Beaulieu said. “That is straight-line thinking that never leads to a proper view of the future. There are way too many nuances for a straight line to be the correct view.”
ITR’s outlook is one of disinflation (easing inflation) beginning perhaps as early as next quarter, with the potential for some deflation in select areas (e.g., oil prices and a few other commodities may edge lower next year). “This is not a period of runaway inflation with interest rates that will rival the early 1980s,” he said.
Beaulieu offered the latest forecast for 2022 and 2023, insights into some key economic indicators, and thoughts on how these trends are affecting hospitals and health systems when it comes to their workforces and operations.
Forecasting 2022 and 2023
The ITR Economics forecast for 2022 and 2023 calls for slower economic growth from now through well into 2023, but no recession. “The first-quarter decline in GDP was technical, with no troublesome drop in key GDP segments like consumer and business spending,” Beaulieu said. “We have been forecasting the U.S. and global economies since 1948. Our average forecast accuracy four quarters out is 94.7%. Our leading indicators give us an edge over other prognosticators and those that depend on headlines. Capital Goods New Orders (without aircraft) are also slowing in their rate of rise, but not to the point where we are getting a signal of a pending recession.”
Inflation
Beaulieu said inflation for the Producer Price Index for pharmaceutical preparations in the U.S. through May 2022 is at 1.4%. It was 2.4% in February 2020 (pre-COVID). Inflation for this PPI had been easing from June 2015 through March 2021.
Consumer demand
Consumer demand is flattening on a deflated (inflation-adjusted) basis, “but not to the point where we believe it will tip the economy into recession,” Beaulieu said. “The overall slower growth is normal given the withdrawal of stimulus checks and that the rate of spending was at an incredibly high and unsustainable level. The surprise is that some people did not expect this slowdown. That is not to say there are not concerns, but income adjusted for inflation is above where we were before COVID, and the outlook is that consumers will keep spending at a sufficient level to keep the economy growing.”
Workforce shortages
“Labor shortages are a reality that will be with us for years to come, and wages will keep moving higher, but not at the same pace as we have been experiencing,” Beaulieu said. “The decelerating rate of rise in wages is consistent with our outlook for disinflation in the coming year. Employers will have to not only pay well, but they will have to actively work on culture to attract and retain talent. Naturally, efficiency gains and automation will be a top priority for every industry in the years to come.”
“When it comes to the healthcare industry, the average weekly wage of healthcare workers in the U.S. over the last 12 months is a record-high $1,150.56 with an annual growth rate of 6.6%, which is a record-high year-over-year rate of rise,” Beaulieu said. “Expect the rate of rise to slow later this year or early 2023 as disinflation trends become more evident,” he said. “The annual average amount of people working in healthcare as of May 2022 is 16.114 million, 231,975 below the March 2020 level. The number of workers continues to rise and can be expected to continue to move higher in the years to come.”
The cost of doing business
“Operating margins are getting squeezed in many industries, which highlights the need for efficiency gains, automation wherever possible, and practical cost management.”
Yes, tracking economic trends has been an adventure
“Tracking economic trends from March 2020 through to today has been a definite challenge to our resources given the essentially unprecedented nature of the pandemic on a modern global economy and the incredible levels of government spending associated with the pandemic,” Beaulieu said. “Fortunately, our theories and methodologies worked extremely well for our clients and subscribers, and our year-end 2020 and year-end 2021 forecast accuracy continued to exceed 94.7% (our average four-quarter accuracy since 1985).”
“It feels very rewarding to continue to accurately guide businesses and individuals through the most turbulent times in our lifetimes.”