Economic Outlook - April 2022
- U.S. Non-Farm payrolls came in slightly below expectations for March, measuring 431K versus an expected 490K. Many of the new jobs created in 2022 have been driven by leisure and hospitality hiring, along with business services. Despite coming in a bit light, the labor market remains extremely tight, with an overall unemployment rate reaching 3.6%, down from the February reading of 3.8%. The ratio of unemployed workers to job openings is at a 7-decade low. The U.S. has nearly recovered all pandemic era lost jobs, measuring 22 million in June of 2020. As employers fiercely compete for talent and labor, we continue to monitor the effect these costs have on profitability among companies.
- The Consumer Price Index rose 7.9% year-over-year as of month end in February, the highest reading since January 1982. The month of February contributed 0.8%, with the conflict in Ukraine exacerbating this one month reading. When removing food and energy costs, the core inflation in the system still rose 6.4% over these 12 months. The market has tied inflation concerns to a rising interest rate environment, which the Fed has foreshadowed for years. Rising inflation and higher interest rates negatively affect Gross Domestic Product growth, and earnings potential of businesses, which all markets have been attempting to digest during 2021 and 2022.
- Manufacturing saw a 22nd consecutive month of expansion, reading 57.1% for March, slightly lower than February and a bit below expectations, but nonetheless, a positive reading from the Institute for Supply Management’s monthly survey. Managers have reported a rise in demand, increasing cost of goods, dropping inventory levels, and a backlog in the supply chain which continues delaying deliveries. All of these inputs are important forward-looking data for larger metrics such as GDP and inflation. If survey participants are proven correct, we will see a continued increase in both. Rising demand from a strong consumer, coupled with shortages of goods will continue to raise the price of goods.
- The Federal Reserve will attempt to cool inflation and the general economy by increasing short term interest rates. One cause and effect has seen interest rates on the two-year U.S. Treasury bond surpass the rate on a ten-year Treasury bond. The anomaly lies in the fact that you are lending for longer with the ten-year, but receiving a lower return, otherwise known as an inverted yield curve, in this case on the “2-10 spread”. Many prognosticators see this anomaly as a warning sign from the market. In recent years, however, this typical irregularity has become more common place given the less natural acts of global central banks manipulating short rates for over a decade. We are watching, but feel this particular warning sign is being overplayed by bears currently.
Sources: Bloomberg LLC, FactSet, U.S. Department of Labor
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