Explore Topics and Trends impacting today's markets

The pandemic disrupted the typical economic patterns, so interpreting data at this stage is exceptionally confusing. Here are a few observations to help one sort through the mixed signals.

 

Headline year-over-year inflation makes the news, but one needs to carefully monitor month-over-month data, as year-over-year data is influenced as much by what happened one year ago as it is by what is happening today. For inflation to recede to 3%, it means the month-over-month change in CPI needs to slow to an average of 0.25% per month.

During the height of the pandemic, consumers bought more goods than before because access to certain services was constrained, which exacerbated the problem with supply chains. A return to pre-pandemic patterns is happening quite slowly, and goods inflation is still outpacing service inflation.

But not all challenges are due to the pandemic. As the service industry restaffs, especially in the hospitality and travel sectors, a considerable number of entry-level jobs are going vacant. Since it is younger workers that typically take these entry level jobs, it is important to note that the younger cohort of the labor force is actually shrinking – adding to entry-level hourly wage pressures.

Finally, note that the Federal Reserve’s dual mandate is about encouraging full employment and price stability. This means that jobs matter more than GDP. Real GDP matched its pre-pandemic high back in Q2 2021 and has since decelerated sharply in 2022.

Jobs are just now getting close to their pre-pandemic high. And even if month-over-month job growth slows in the second half of 2022 back to trend, what will matter to many analysts is whether or not the unemployment rate remains below 4%.


 

 

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

©2022 CME Group Inc. All rights reserved