Weekly Market Insight

ECONOMIC REVIEW

• The Conference Board Consumer Confidence Index increased to 115.8 from the previous reading of 109.5. This was well above economists’ expectations which called for an increase to 111.

• Personal income for the month of November increased +0.4% which was in line with consensus.

• The Personal Consumption Expenditure (PCE) increased by +0.6% which was also in line with estimates among economists. On a year-over-year basis PCE is up +5.7%

INSIGHT: The Consumer Confidence Index, which measures consumers' assessment of current conditions and their outlook for the future, rose to its highest level since July of this year. Most respondents highlighted that though current conditions may seem dim, the next 6 months look much brighter. In addition, it was the first reading taken since COVID-19's Omicron variant started spreading rapidly around the world. As consumer confidence increases it is not surprising to also see an increase in personal income. Both wages and an increase in government transfer payments added extra cash for the consumer. With extra cash to spend during the holiday season, consumption rose 0.6% in November, led by spending on services. Inflation is gauged by multiple readings; however, the Personal Consumption Expenditure (PCE) is the most favored by the Federal Reserve and informs their policy actions. While inflation numbers have reached record highs, economists suggest the peak has been reached. While price increases have been extremely elevated, the consumer has remained strong and continues to keep up the pace of spending.

Melissa MinterJanuary 4, 2022

Overview

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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018's 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $980 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

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