Quarterly Market Review: January-March 2022

Key Dates/Data Releases

4/1: Employment situation, Markit Manufacturing PMI

4/5: International trade in goods and services, Markit Services PMI

4/12: Consumer Price Index, Treasury budget

4/13: Producer Price Index

4/14: Retail sales, import and export prices

4/15: Industrial production

4/19: Housing starts

4/20: Existing home sales

4/26: New home sales, durable goods orders

4/27: International trade in goods

4/28: GDP

4/29: Personal income and outlays

Stock Market Indexes

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Latest Economic Reports

• Employment: Employment rose by 678,000 in February, notably higher than the January revised total of 481,000. Despite the increase, employment is down by 2.1 million, or 1.4%, from its pre-pandemic level in February 2020. The unemployment rate inched down by 0.2 percentage point to 3.8%. The number of unemployed persons decreased 243,000 in February to 6.3 million. By comparison, in February 2020 prior to the coronavirus (COVID-19) pandemic, the unemployment rate was 3.5%, and the number of unemployed persons was 5.7 million. Among the unemployed, the number of workers who permanently lost their jobs declined by 100,000 to 1.5 million in February. Also in February, the number of persons who were unable to work because their employer closed or lost business due to the pandemic fell to 4.2 million. The labor force participation rate increased 0.1 percentage point to 62.3% in February. The employment-population ratio increased by 0.2 percentage point to 59.9%. In February, average hourly earnings were relatively unchanged at $31.58. Over the last 12 months, average hourly earnings rose by 5.1%. The average work week rose by 0.1 hour to 34.7 hours in February.
• There were 202,000 initial claims for unemployment insurance for the week ended March 26. Over the first three months of 2022, initial weekly claims and total claims for unemployment insurance benefits steadily decreased. As of March 19, there were 1,307,000 total claims for unemployment benefits. This is the lowest level for insured unemployment since December 27, 1969, when it was 1,304,000. A year ago, there were 3,753,000 total claims for unemployment insurance benefits.

• FOMC/interest rates: Following its meeting in March, the Federal Open Market Committee increased the federal funds target rate range by 25 basis points to 0.25%-0.50%. In support of its decision, the Committee noted that inflation remains elevated due to imbalances related to the pandemic, higher energy prices, the Russia-Ukraine conflict, and broader price pressures. In addition, the FOMC anticipates six more rate hikes, some could be by as much as 50 basis points.

• GDP/budget:Gross domestic product rose 6.9% in the fourth quarter of 2021 compared with a 2.3% advance in the third quarter. The increase in GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures, and nonresidential fixed investment that were partly offset by decreases in both federal and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. Consumer spending, as measured by personal consumption expenditures, was 2.5% in the fourth quarter (2.0% in the third quarter). Spending on goods rose by 1.1%, while spending on services climbed 3.3%. The PCE price index, a measure of inflation, increased 6.4% in the fourth quarter after advancing 5.3% in the third quarter. Gross private domestic investment, which includes nonresidential and residential fixed investment, vaulted 36.7% in the fourth quarter after gaining 12.4% in the third quarter. Nonresidential (business) fixed investment increased 2.9% (1.7% in the third quarter), while residential fixed investment increased 2.2% (-7.7% in the third quarter). Exports jumped 22.4% in the fourth quarter after falling 5.3% in the prior quarter. Imports climbed 17.9% following a 4.7% rise in the third quarter.
• The Treasury budget deficit came in at $216.6 billion in February, a notable jump from the surplus of $118.7 billion in January. By comparison, the deficit in February 2021 was $310.9 billion. Through the first five months of fiscal year 2022, the deficit sits at $475.6 billion, 55.0% lower than the deficit over the same period in fiscal year 2021. So far in this fiscal year, individual income tax receipts have risen 38.0% and corporate income tax receipts have increased 31.0%. Compared to the same period last fiscal year, government expenditures fell 9.0% to $506.5 billion, while receipts rose 17.0% to $289.9 billion.

• Inflation/consumer spending: According to the latest Personal Income and Outlays report for February, personal income rose 0.5%, while disposable personal income increased 0.4% after each increased 0.1% in January. Consumer spending increased 2.0% following a 2.7% jump in January. Consumer prices climbed 0.6% in February after advancing 0.5% in January. Consumer prices have risen 6.4% since February 2021. Year over year, energy prices vaulted 25.7%, while food prices increased 0.8%.
• The Consumer Price Index climbed 0.8% in February after climbing 0.6% in the previous month. Increases in the indexes for gasoline, shelter, and food were the largest contributors to the CPI increase. The gasoline index rose 6.6% in February and accounted for almost a third of the overall February increase. Since February 2021, the CPI has risen 7.9% — the largest increase since the period ending January 1982.
• Prices that producers receive for goods and services jumped 0.8% in February following a 1.2% increase in January. Producer prices have increased 10.0% since February 2021. Prices less foods, energy, and trade services increased 0.9% in January, the largest increase since rising 1.0% in January 2021. For the year, prices less foods, energy, and trade services moved up 6.6%. In February, prices for goods jumped 2.4%, while prices for services were unchanged. A major factor in the February increase in the prices for goods was an 8.2% increase in energy prices, within which gasoline prices spiked 14.8%.
• Housing: Sales of existing homes reversed course, falling 7.2% in February after advancing 6.7% in January. Year over year, existing home sales were 2.4% under the February 2021 estimate. According to the latest survey from the National Association of Realtors®, housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases. The median existing-home price was $357,300 in February, up from $350,300 in January and 15.0% more than February 2021 ($310,600). Unsold inventory of existing homes represents a 1.7-month supply at the current sales pace. Sales of existing single-family homes also fell, down 7.0% in February after rising 6.5% the previous month. Since February 2021, sales of existing single-family homes have fallen 2.2%. The median existing single-family home price was $363,800 in February, up from $357,100 in January.
• Sales of new single-family homes fell 2.0% in February after decreasing 8.4% (revised) in January. The median sales price of new single-family houses sold in February was $400,600 ($427,400 in January). The February average sales price was $511,000 ($494,000 in January). The inventory of new single-family homes for sale in February represented a supply of 6.3 months at the current sales pace, up from January's 6.1-month supply. Sales of new single-family homes in February were 6.2% below the February 2021 estimate.

• Manufacturing: Industrial production increased 0.5% in February following a 1.4% increase in January. In February, manufacturing rose 1.2% and mining increased 0.1%, while utilities fell 2.7%. Total industrial production in February was 7.5% higher than it was a year earlier. Since February 2021, manufacturing has risen 7.4%, mining has jumped 17.3%, while utilities decreased 1.2%.
• February saw new orders for durable goods decrease 2.2%. This decrease, down after four consecutive monthly increases, followed a 1.6% January increase. Excluding transportation, new orders fell 0.6% in February. Excluding defense, new orders dropped 2.7%. Transportation equipment, down following three consecutive monthly increases, led the decrease, declining 5.6%.

• Imports and exports: Import prices rose 1.4% in February after advancing 1.9% in January, according to the U.S. Bureau of Labor Statistics. Higher fuel and nonfuel prices drove the increases in both months. Contributing to the increase in February import prices was a 6.9% jump in fuel prices. Prices for nonfuel imports rose 0.8% in February. For the 12 months ended in February, prices for imports have advanced 10.9%. Over the same period, prices for fuel have increased 53.0%. Prices for U.S. exports advanced 3.0% in February following a 2.8% rise the previous month. The February advance in export prices was the largest since January 1989. Higher prices for both agricultural and nonagricultural exports in January contributed to the overall increase in U.S. export prices. Export prices have risen 16.6% since February 2021.
• The international trade in goods deficit was $106.6 billion in February, down $1.0 billion, or 0.9%, from January. Exports of goods were $157.2 billion in February, $1.9 billion more than in January. Imports of goods were $263.7 billion, $0.9 billion more than January imports.
• The latest information on international trade in goods and services, released March 8, is for January and shows that the goods and services trade deficit rose by $7.7 billion to $82.0 billion from the December 2021 deficit. January exports were $224.4 billion, $3.9 billion less than December exports. January imports were $314.1 billion, $3.8 billion more than December imports. Year over year, the goods and services deficit increased $24.6 billion, or 37.7%, from the same period in 2021. Exports increased $29.9 billion, or 15.4%. Imports increased $54.4 billion, or 21.0%.

• International markets: While business activity in the United States picked up, despite the turmoil in Ukraine, Europe hasn't been quite as fortunate. Most of Europe has seen the war exacerbate already strained supply chains, which has sent prices for raw materials and energy soaring — despite the lifting of most pandemic-related restrictions. The European Central Bank lowered its forecast for economic growth in the eurozone from 4.2% to 3.7%, while acknowledging that the impact of the Russian invasion could be larger. In Japan, the government proposed more measures to boost the economy. China saw a drop in stock prices after reports of a worsening coronavirus outbreak across the mainland. Overall, for the markets in March, the STOXX Europe 600 Index rose 3.1%. The United Kingdom's FTSE gained 2.0%. Japan's Nikkei 225 Index climbed 6.2%, while China's Shanghai Composite Index fell 6.3%.

• Consumer confidence: The Conference Board Consumer Confidence Index® rose slightly in March following a decline in February. The index stands at 107.2, up from 105.7 in February. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, improved to 153.0 in March, up from 143.0 in February. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, declined to 76.6 in March, down from 80.8 in February.

Eye on the Month Ahead

Despite accelerating inflation, the war in Ukraine, and rising interest rates, most economic indicators are still demonstrating varying degrees of strength. However, March data may begin to show some economic slowing. Gross domestic product, which ran at an annualized rate of nearly 7.0% in February, is likely to recede, while the pace of job growth may decelerate. While the Federal Open Market Committee does not meet in April, it is expected to push interest rates up by 50 basis points in May. Hopefully, a resolution to the Russia-Ukraine conflict is near.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

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Philippe E Berthoud and William E. Riquier offer Securities and Advisory Services through United Planners Financial Services, Member FINRA/SIPC. United Planners and The Retirement Financial Center are independent companies.

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