MARKET VIEW WEEKLY

ECONOMIC REVIEW

• The Consumer Price Index (CPI) for the month of December increased at a month-over-month rate of 0.5%, above the expectation of a 0.4% increase

• The Producer Price Index (PPI) for the month of December increased by 0.2%, below the consensus expectation increase of 0.4%.

• Retail sales for the month of December came in sharply below expectations, decreasing by -1.9% compared with expectations of a -0.1% decline.

INSIGHT: Data surrounding inflation was mixed for the month of December. Consumer prices increased more rapidly than prices for producers. Consumer prices continued their rapid ascent, pushing the 12-month increase for the year of 2021 to 7.0%, the highest rate in nearly 40 years. Consumer price increases for December were broad based as shelter, food, and new and used vehicles all added to overall increases. Comparatively, producer prices rose much more moderately, marking the smallest increase in nearly a year. Services were the largest contributor to gains but were mainly offset by a drop in goods prices. This drop in goods prices was the first monthly decline since 2020. Retail sales moved sharply to the downside, and though the miss was not surprising, the magnitude was. The miss can be attributed to consumers pulling their Christmas shopping forward as fear of shortages and supply issues loomed. On a brighter note, retail sales for the fourth quarter were up 2.1% compared to the third quarter and up 17.1% compared to last year.

A LOOK FORWARD

• Housing starts for the month of December will be released on Wednesday; the expectation is for starts to decrease by -1.7% on a month-over-month basis.

• Existing home sales for the month of December will be announced on Thursday, the expectation is for home sales to decrease by -0.6% on a month-over-month basis.

General News, Monthly Market Update, Newsletter, Timely Topics, Weekly Market UpdateMelissa MinterJanuary 24, 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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