Directory
- 2020
- June
- July
- September
- November
- December
- 2021
- January
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
- February
- Long Term Employment Shifts Caused by the Pandemic
- Earnings Provide Positive Surprise Despite Pandemic
- Renewable Energy Under Fire in Texas
- Yellen Aims for Full Employment
- Minimum Wage Research in the Spotlight as a Hike Looks Inevitable
- Non-Residential Construction Soft in the Pandemic Economy
- March
- Views on Interest Rates and the Move in Treasury Yields
- Inflation Indicators Healthy but Still on the Rise
- Risky Assets Sell-off Despite Optimistic Economic Outlook
- The Latest on Vaccinations and What it Means for Growth
- April
- May
- Highlights of the Fed's "Economic Well-Being of U.S. Households in 2020" Report
- Relative Factors and Forward Change in Federal Funds Rate
- Can Wage Growth Keep Up With Inflation?
- June
- July
- August
- With That, We Carry On
- Supply Pressures Looking to Peak
- Cars are Still Expensive, Workers are Still Needed
- Recovery Continues, but Delta Looms
- September
- Fed Eyes Tapering While China Sees a Setback
- Review the Fed Previews
- No Tapering Yet
- Labor Day on Labor Day
- October
- Delayed or Disappearing Growth?
- Supply and Demand Mismatch will be Evident during the Holiday Shopping Season
- Workers Find Leverage in a Tight Labor Market
- Cautiously Optimistic
- Sour Expectations Take Down the Market
- November
- Q3 Earnings Were Surprisingly Good
- Inflation Weights on Bonds and Consumer Sentiment
- FOMC Tapers While Trade and Employment Flash Mixed Signals
- December
- 2022
- January
- Inflation is Getting Broader, Not Cooler
- Unemployment Insurance During the Pandemic
- A Year of Normalization
- What Will GDP Growth Look Like in 2022?
- February
- March
- April
- May
- June
- August
- Student Loans Targeted by the Biden Administration
- The Chicago Fed Index Reverses in July
- Chinese Economic Data Faltered in July
- Stellar Jobs Report Bucks Recession Fears
- September
- Bank of Japan Punished for Dovish Policy Stance
- Expect 75 Today
- Manufacturing Weakness in Germany has Implications for Euro Area Growth
- October
- 2023
- February
- April
- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- May
An Awkward Economy
Jacob Hess
December 12, 2021
- Weekly Commentary
The Week Behind
Awkward. The global economy is in an awkward position. Labor markets in developed markets are hot, and inflation is still rising (both especially true in the US). However, just as the signs of too much demand reach their peak, new risks arise. The Omicron variant has added uncertainty to the outlook for the pandemic which looked to be fizzling out following the Delta variant outbreak. The new public health issue has thrown a wrench into the plans of many central banks who need to respond to inflation with tightening but could be forced to react with easing to new COVID restrictions. Meanwhile, US equities look to set new records.
US stocks have been volatile over the last two weeks. A bearish end to November shaved of about -5% from the S&P 500 in response to the emergence of the Omicron virus. However, that was followed by an immediate bounce at the beginning of December which brought the equity market back near all-time highs. The bounce looks "awkward," though, for two reasons: (1) the volumne of advancing shares vs declining shares in the first week of December was weak historically and (2) insider trading selling set a new annual high through the first 11 months of 2021.

Potential awkwardness that could come from a US default on the national debt looks to be put to bed by the news of a deal between Senator McConnell and Majority Leader Schumer which would allow the Democrats to pass a bill to raise the debt limit just before the Treasury is set to run out of money on December 15th. It seems to be business as usual in the sense that it is a temporary reprieve that pushes the issue back another year. In another nod to the status quo, moderate Democrats look to be flexing their power in the infrastructure bill negotiations as they cite inflation as a concern when choosing the size of spending. Raymond James sees spending shrinking "from as high as $6 trillion to ~$1.75 trillion."
Central banks are taking the center stage this week, and this won't be the last time. In fact, monetary policy will be a huge theme in the first half of 2022. But at the moment, different reactions to the Omicron variant have led to differing policy outlooks which could leave leading central banks in an awkward position of policy divergence. The Fed seems on track to tighten asset purchases as new virus fears probably won't change its outlook, but the ECB and Bank of England could be distracted if the nations they represent move towards policy public health restrictions in response to Omicron.
Nevertheless, inflation demands to be addressed. The November US CPI reading signaled another month of robust price growth at 0.8% MoM and another acceleration of the yearly pace to 6.8% YoY. Core CPI also accelerated from 4.6% YoY to 4.9% YoY on further increases in automobiles, apparel, and indexes related to travel (see Chart of the Week). The pace of increases has slowed, which is a good sign, but inflation has not peaked. Chair Powell notably dropped his evaluation of inflation as "transitory" this week as well. That was a bit "awkward" after using it so heavily for the past 6 months.
The good thing about the end of the year, particularly in December, is that most people get to spend it away from these "awkward" topics (maybe not if you're an economist). Seasonality seems to have taken over markets which seem to be entering into their typical "Santa Claus rally" pattern. Regardless, the questions asked of the economy will have to be addresses and central bank announcements this week may guide us on how financial leaders will start to provide answers in 2022.
Chart of the Week

Consumers are preparing for an expensive Christmas, but they might be able to reduce the burden of rising prices by celebrating at home. Some away from home categories exceed or are about the same as their at home counterparts. This may be more of a result of leisure and hospitality labor shortages than goods inflation. Total job openings and total quits were up 61% YoY and 24% YoY in October while the leisure and hospitality industry saw job openings and quits rise 101% YoY and 47% YoY.
The Week Ahead
PPI and retail sale releases come out this week before the Fed releases its announcements. Many are expecting further guidance on tapering and updated projections to give guidance on rate hikes next year. The Bank of England and the ECB will also provide policy updates. The BoE might even raise rates in response to rising inflation depending on their initial assessment of the Omicron threat.