In the back of my mind, the same question has persisted for over a year; When will this pandemic ever end? At some point, we will probably become used to Covid-19 being around. For now, though, it is still a big driver for the economy, causing slow-downs and accelerations as it proceeds down its course. Omicron has continued that, slowing down the recovery to start the year.
Let’s Look at Some Highlights
THE STATE OF JOBS
In December, expectations indicated payrolls would rise by 422,000. They missed. Badly. While the unemployment rate did drop to 3.9%, non-farm payrolls only increased by 199,000 in December. That miss occurred even before Omicron’s impacts were truly felt, as the December survey period ended December 12th, before Omicron was surging in the U.S.
To add a bit of perspective to where our workforce is today, there were about 152.5 million payrolls in the U.S. just before the pandemic started in February of 2020. Fast forward to December 2021, we had roughly 149 million payrolls, so we had around 3 million more people working in the early parts of 2020. Remember, many people dropped out of the workforce during the pandemic, choosing to stay at home, work gig jobs, or just flat out retire. The labor force participation rate declined by about 1.5% since pre-pandemic, with about 2.3 million workers dropping out of the workforce during the pandemic.
There are certainly some workers available, but there’s not a ton of them out there unless the labor force participation rate ticks back up. Right now, there are far more job openings than available workers. That means the labor shortages we are experiencing have a good chance of persisting. With so many job openings, workers have many mobility options leading to high quit rates in what is now labeled “The Great Resignation.” Long story short, the jobs market is in a state of instability, and businesses (and consumers) feel its disruption.
GROWTH PROSPECTS HAVE MODERATED, BUT BUSINESSES REMAIN OPTIMISTIC
Usually, this is the spot I would write about inflation and what the Fed is doing to combat it, as it is also a significant mover of the market this year. Michelle just wrote about it here, so instead, let’s talk about the overall economy and how businesses feel.
A business research group called The Conference Board (TCB) forecasts U.S. Real GDP growth will rise to 6.5 % (annualized) in Q4 2021 and that 2021 annual growth will come in at 5.6% year-over-year. For 2022, growth predictions are scattered (TCB forecasts 3.5%, Bank of America estimates 4%, Goldman Sachs predicts 3.8%), but the consensus is positive but slower growth than 2021. That’s unsurprising; 2021 was a strong rebound year. Additionally, we have high inflation and a more aggressive fed to deal with.
Businesses are predicting growth for 2022 as well. The Institute for Supply Management (ISM) survey reports that 65% of respondents expect higher revenue in 2022, with a 6.5% net increase in sales for 2022. Comparatively, 2021 saw a 14.1% increase in sales. Businesses share similar expectations as economists, with positive but slower growth for 2022.
- The S&P 500 was up 28.71% in 2021, through Jan 18th, 2022 it is down 3.91% YTD
- International Stocks (MSCI EAFE Index) were up 11.26% in 2021, through Jan 18th 2022 it is down 0.95% YTD
- Bonds (Barclays Aggregate Bond Index) were down 1.54% in 2021, through Jan 18th, 2022 it is down 2.43%YTD
The Smart Investor
Getting the year started on the right footing is all about the details. A new year brings a new wave of resolutions, including personal fiscal fitness. Whether it’s getting your budget in order, paying off some debt, or socking away some money, the new year gives you a fresh start to get on the right footing.
As we enter tax season, there’s still time to open an and contribute to IRAs. With 401(k) contribution limits increasing due to the inflation bump, you can also consider putting more away in tax-deferred accounts. We are here for you if you need some help with a plan for your new goals.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities that represent the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate-term investment-grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.