Commentary Directory
- 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
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- 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?
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.