Economic Outlook - June 2022
- The U.S. economy contracted at a slightly faster pace in the first quarter (Q1) than previously reported. The Commerce Department stated that the second estimate for Q1 real gross domestic product (GDP) decreased at an annual rate of 1.5% versus the initial estimate of a decline of 1.4%. The latest figure primarily reflects downward revisions to private inventory investment and residential investment that were partly offset by an upward revision to consumer spending. The GDPNow model estimate for real GDP growth in Q2 is currently 0.9%. For the full year 2022, we anticipate real GDP growth in the range of 2.0% – 2.5%.
- The labor market remains resilient and edges closer to pre-pandemic levels. The Bureau of Labor Statistics announced that nonfarm payrolls increased by 390,000 in May, which was above market forecasts and left the economy 822,000 jobs below the February 2020 level. The largest increases were in the leisure and hospitality sectors, followed by professional and business services, transportation, and warehousing. The unemployment rate remained at 3.6%, and average hourly earnings increased 5.2% from a year ago.
- The Federal Open Market Committee (FOMC) last met on May 3-4, and the members unanimously voted to raise its benchmark interest rate by 50 basis points. The target range for the federal funds rate is now 0.75% to 1%. Chairman Jerome Powell underlined the commitment to bringing inflation down and indicated that 50 basis point increases are possible at the next two meetings. In addition, the central bank outlined a program for reducing its balance sheet by no longer reinvesting proceeds of maturing securities. Beginning in June, the Fed will lower its Treasury securities by $30 billion per month and its holdings in agency debt and mortgage-backed securities by $17.5 billion per month. In September, the monthly runoff will be increased to $60 billion for Treasury holdings and $35 billion for agency debt and mortgage backed securities. The next FOMC meeting takes place on June 14-15.
- Inflation remains high, but there are some signs that it may have peaked. The Consumer Price Index (CPI) all items index increased 8.3% for the 12 months ending April, a smaller increase than the 8.5% figure for the period ending in March. Core CPI, which excludes food and energy, rose 6.2% over the last 12 months, which was also less than the March figure of 6.5%. Money growth (M2) has slowed significantly, container freight rates are declining, fertilizer prices are off sharply, and lumber prices are down 50%.
Sources: Bloomberg, FACTSET, U.S. BEA, U.S. BLS, Federal Reserve, Instit. For Supply Mgmt, ISI, IBD, Yardeni Research
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