Feeling good

Coming in hot

The big report of the week was inflation – CPI, which measures the changes in the cost of a basket of goods – increased 6.8% in November compared to the prior year. This is the highest increase in prices this country has seen since 1982. This print was slightly above expectations of a 6.7% increase in prices. And the inflation was apparent across literally every category. Gas prices are up 58%, food prices are up 6%, car prices are up 31%, apparel up 5%, blah blah. Even though pay increases have increased 4.8% over the same time, obviously not even close to keeping up with the increase in prices.

Moral of the story: The market honestly didn’t react to this elevated level of inflation because we knew it was coming. It’s still driven by a broken and clogged up supply chain that’s not allowing supply to keep up with demand. This supply chain isn’t going to fix itself anytime soon, which means this inflation is likely staying through next year (so make sure your raise for next year is at least 7%, have a conversation with your employer if not!). The Federal Reserve has finally acknowledged that this inflation is no longer going to magically go away, which means they’re going to start making policy decisions to bring it under control (read: raise interest rates).

Success

We got the November jobs report last week, which showed we created far less jobs than expected but the unemployment rate also ticked down. This week, we saw two new updates on the employment front – there are still 11m job openings that need to be filled and new unemployment claims last week fell to the lowest rate (184k) that we’ve seen since the fall of 1969 (though part of this headline drop was a seasonality adjustment).

Moral of the story: It’s going to take a while for unemployment to get back to pre-COVID levels, but it’s pretty apparent that the labor market is in fine shape if we take into account all these different indicators – people are quitting at a shockingly high rate (they only do that if they’re confident in their ability to get a job elsewhere), there are “help wanted” signs on every storefront, and there’s no dearth of job opportunities for anyone looking for employment. It’s been a rocky road to recovery in the last 20 months, but policy makers should be feeling good about where we are today on the employment front. Just another indication that Fed policy changes are not far away (read: higher interest rates are coming).

Rebounding sentiment

Consumer sentiment finally rebounded in December after historic lows. The promising part was that consumers are feeling better about both current and future economic conditions, despite their expectations for higher inflation to continue and (more surprisingly to me) despite the temporary panic from Omicron that was captured in this data. When asked about the most serious problem facing the economy, consumers overwhelmingly pointed to inflation, not unemployment, which is the part of the economic recovery that the Fed has been super focused on.

Moral of the story: Consumers drive this economy – as long as they’re still optimistic and willing to spend, we’ll be ok. That does require wages to **at least** keep up with inflation, so all eyes on policy-makers figuring out how to help lessen the burden on Americans who are stuck between a rock and a hard place managing their limited dollars.

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