MARKET VIEW WEEKLY

ECONOMIC REVIEW

• The ISM Manufacturing Index for the month of December fell to 58.7, lower than the expectation among economists of 60.

• The ISM Services Index for the month of December decreased more than expected. The index fell to 62 while the expectation was for a decrease to 67.

• Non-farm payrolls for the month of December missed sharply to the downside, the survey expectation was for the economy to add 450,000 jobs whereas the actual increase was 199,000.

INSIGHT:

The first week of the year started off with some disappointments in terms of economic data. The jobs report revealed hiring slowed in the final weeks of 2021 as coronavirus case counts increased to unprecedented levels and fueled new concerns for the still-incomplete recovery. The latest count marks the worst month of job creation since December 2020. Despite the big hiring miss, the unemployment rate fell to 3.9%, reaching below 4% levels for the first time since late 2019 and early 2020. The manufacturing sector continued to expand in December, though at a slower pace, with fifteen of eighteen industries reporting growth. Respondent comments in December continued to be dominated by widespread worries about input availability and labor shortages. The service sector retreated as expected due to the record-setting pace in November, attributable to news about the Omicron variant and its effects on more pandemic-sensitive industries. Most notably, some supply constraints have started to slow; the backlog of orders index fell for the second consecutive month. Lastly, the supplier deliveries index posted its largest monthly decline since 1997, signaling shorter wait times for inputs.

Melissa MinterJanuary 11, 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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MARKET VIEW WEEKLY

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