In today’s Steady Investor, we dive into key market factors that we believe investors should keep an eye on for the future, such as:
- Wages and inflation on the rise
- U.S. GDP growth boom in Q4 2021
- Consumer spending
Wages Up, Inflation Up – It is common knowledge by now that inflation in the U.S. – and also around the developed world – has been rising at a faster-than-expected pace. According to the Bureau of Labor Statistics, the Consumer Price Index for all urban consumers rose 0.5% in December (seasonally adjusted), putting its full-year increase at 7% and marking its fastest increase in over 20 years. It’s not all bad news though – wages are also on the rise, and higher incomes can serve to neutralize the effect of higher prices for goods and services. According to the Labor Department, the U.S. employment-cost index, which measures wages and benefits paid by employees, jumped 4% in Q4 2021 from a year earlier – which also marked the fastest rate of growth in 20+ years. The offset is not perfect, and not everyone received wage or salary increases last year. But as you can see in the chart below, wage increases have been stubbornly low in the previous decade, so the sharp increase over the last year was a welcomed development for workers.1
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U.S. GDP Growth Booms in Q4 2021 – The Omicron surge had many market watchers worried. Would the economic effect be similar to what we saw with Delta, which dealt a brisk headwind to spending and growth and ultimately anchored GDP for the quarter? The answer, it seems, was no. The U.S. economy posted very strong growth in Q4 2021, surging at a 6.9% annual rate. All told, 2021 was the strongest year of economic growth in the U.S. in almost 40 years, with output growing 5.5%. The quarter-over-quarter growth rate from Q3 2021 to Q4 2021 was also a meaningful 2.3%, adjusted for inflation, which underscores the light impact felt by the Omicron wave. According to the Commerce Department, households posted solid spending numbers in Q4, but the real juice behind the GDP growth surge came from businesses replenishing inventories. Without the inventory restock, GDP would have grown at a much softer 1.9% in Q4. Such a lower growth rate would have put the U.S. more in line with Europe, which has been lagging in its recovery. GDP growth for the 19-country eurozone rose just 1.7% in Q4, and Germany’s economy contracted slightly.4
Is Consumer Spending Poised to Shift from Goods to Services? One of the key drivers of inflation over the last year was the stark U.S. consumer shift from services to goods. With the pandemic’s impact on consumers’ desire to travel, go out, etc., many opted to spend more on goods like home furnishings and computers. The result was a very robust demand for goods bumping up against snarled supply chains that simply could not keep up. Prices for goods like furniture and appliances soared 10.7% from a year earlier, while the costs of services like airfares went up a lesser 3.7%. As demand outstripped supply, prices went up. The trend may be reversing – as the Omicron wave looks to be retreating as the spring season approaches, consumers appear to be stepping out again. As readers can see in the chart below, spending on goods and services have been steadily converging over the past few months.5
Protect Your Retirement Assets – Instead of trying to predict where the market is headed, we recommend that investors, especially those planning for retirement, prepare for its unknowns. This will involve finding a retirement strategy that takes the “what ifs” into account. Our free guide can help you to prepare for what’s to come as you plan your retirement!
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Disclosure
2 Fred Economic Data. January 28, 2022. https://fred.stlouisfed.org/series/ECIWAG#0
3 ZIM may amend or rescind the guide “How Solid Is Your Retirement Strategy?” for any reason and at ZIM’s discretion.
4 BEA. January 27, 2022. https://www.bea.gov/news/2022/gross-domestic-product-fourth-quarter-and-year-2021-advance-estimate#:~:text=Measured%20from%20the%20fourth%20quarter,the%20fourth%20quarter%20of%202020
5 Wall Street Journal. February 2, 2022. https://www.wsj.com/articles/consumers-are-pivoting-spending-to-services-like-dining-and-travel-11643797808
6 Fred Economic Data. January 28, 2022. https://fred.stlouisfed.org/series/PCEDG#0
7 ZIM may amend or rescind the guide “How Solid Is Your Retirement Strategy?” for any reason and at ZIM’s discretion.
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