Umpqua Bank released its 2022 economic outlook report for small and middle-market companies titled “Headwinds & Opportunities: Economic Trends & Predictions for Businesses in 2022.” The bank tapped West Coast economists and Umpqua Bank thought leaders to examine key issues that will shape the 2022 economic landscape, their impact on decision-making and what businesses can do to meet both challenges and opportunities with confidence.

Issues explored in-depth in the report include the COVID-19 pandemic, inflation, supply chain and labor challenges and opportunities in automation, commercial real estate and M&A.

“Every year brings a unique set of challenges and opportunities. Successfully navigating these developments starts with understanding key factors shaping the economy and what they mean for business,” Tory Nixon, president of Umpqua Bank, said. “Looking ahead to 2022, there’s tremendous growth opportunity for those businesses that remain nimble and prioritize adaptability. At Umpqua, we help businesses of all sizes plan for growth while preparing for the unexpected that’s part of doing business in the current economy.”

Highlights of the Report

The Economy

• Americans’ net worth has soared during the pandemic, with many consumers flush with cash and ready to spend. This suggests 2022 will be a year of strong demand and growth potential, depending on the pandemic’s trajectory.
• Businesses in service industries need to prepare for significant increases in demand, as strong consumer spending is expected to shift from goods to services.
• Inflation will continue to pose a challenge to the economy and be especially challenging for businesses that rely on purchased goods.

Major Disruptions

• A shift in demand from goods to services should improve supply chain efficiency and delivery times and ease pressure on the system.
• It will be important for businesses to heed lessons learned from recent supply chain disruptions and carefully reevaluate their sourcing, inventory, manufacturing and pricing strategies.
• The talent environment will continue to be highly competitive, and companies will want to invest in strong compensation packages to attract hesitant workers, particularly in high-need industries, such as leisure, hospitality and retail.

Strategic Investments

• Strong M&A activity is expected to continue. Cash-rich firms will be in a strong position to acquire competitors whose owners are exiting or less competitive financially, and more firms impatient with the pace of organic growth will look to acquire competitors.
• Automation adoption is increasingly affordable and will continue to advance among small and mid-size companies and be most prominent in industries facing significant wage pressure.
• It will be important for businesses to reevaluate their current real estate position and strategy as uncertainty in the office sector will continue into 2022. This will create opportunities for businesses, as many employers will continue to refine their workplace expectations and hybrid work environments. In addition, multi-family housing looks strong moving forward.

U.S. Policy and Cybersecurity

• Major legislation currently being passed or considered by Congress could have significant implications for businesses and investors. It will be critical to understand how any changes to fiscal policy will impact cash flow and financial planning.
• The move to real-time payments will accelerate, which will improve cash flow and require businesses to enhance their cybersecurity measures to protect working capital.