Weekly Market Commentary January 10th to January 14th 2022
To kick off the week, the National Federation for Independent Businesses’ survey of small business owners showed continued concern over labor shortages and input price increases. 48% of small business owners said they were raising wages to recruit workers, the highest figure since 1974. The overall survey figure came in at 98.9, slightly beating estimates, as demand remained strong across industries. The Federal Reserve ‘Beige Book’ survey of businesses across the country told a similar tale, with labor shortages being the largest concern of business owners.
The Consumer Price Index (CPI) report was the most important of the week. Headline inflation numbers came in around analyst expectations, with a 0.5% monthly increase. On a yearly basis, inflation is running at a 40-year high of 7%, or 5.5% when stripping out the volatile prices of food and energy. Used car prices were one of the biggest culprits, rising 3.5% from last month, while airfares spiked 2.7%. Producer Price Inflation (PPI) rose only 0.2% as energy prices fell in December. However, the ex-food and energy gauge of “core prices” rose 0.5% monthly. On an annual basis, PPI is up 9.7%, with core prices rising 6.9%.
Jobless Claims unexpectedly spiked in what could be an ominous sign for the labor market’s handling of the Omicron COVID-19 variant. New jobless claims tallied 230,000, while analysts were expecting 200,000. This marked an 11% jump from last week.
Retail Sales fell -1.9% in what was a massive disappointment. Analysts had been looking for a 0.2% increase. Home furnishings and sporting goods were particularly weak categories. Fairly strong figures in October and November indicate that consumers began their Christmas shopping earlier this year. Holiday shopping seasons have been getting longer for years, but this year many Americans decided to buy early because they were worried about long delivery times and other supply chain bottlenecks.
Consumer Sentiment, as measured by a University of Michigan survey, registered a 68.8 reading, which was the second worst of the decade. Consumers are unhappy with rising prices and wary of continued disruptions from the Omicron variant. This number contradicts the strength of consumers’ balance sheets, specifically due to rising asset prices and strong wage growth for traditionally lower-wage workers.
Stocks were down slightly this week. The S&P 500 and NASDAQ both fell -0.3%, finishing at 4,663 and 14,894, respectively. The NASDAQ sits 7% off its all-time high, due to a decline in tech shares. The yield on the 10-year U.S. Treasury bond reached 1.79% by the end of the week. It was below 1.50% as recently as December 31, and has risen rapidly due to expectations for Federal Reserve interest hikes in the near future.
Next week’s economic releases are dominated by housing data, including Building Permits, Existing Home Sales, and Housing Starts. Regional manufacturing surveys and Jobless Claims will also bear watching.