The major benchmark indexes closed last week lower. Rising tensions over the Russia-Ukraine situation coupled with rising inflation made investors a bit skittish towards stocks. A higher-than-expected jump in the Consumer Price Index added to jitters over an accelerated tightening of the Federal Reserve’s monetary policy. The Nasdaq, the S&P 500, and the Dow lost value last week, while the Russell 2000 and the Global Dow advanced. As of late Friday afternoon, concerns increased that Russia could invade Ukraine “any day now.” An invasion would likely spur sanctions against Russia’s exports of oil and gas, causing supply to decrease and prices to rise. Crude oil prices rose nearly 1.7% last week following Friday’s 4.0% jump in the price per barrel. Ten-year Treasury yields were volatile last week, reaching 2.0%, only to drop back down to 1.95% by the end of the week. Gold prices rose for the second consecutive week. Meanwhile, fourth-quarter earnings data continued to be mainly positive, with 78% of the S&P 500 companies exceeding earnings estimates.
Last Week’s Economic News
· The Consumer Price Index rose 0.6% in January from the previous month and is up 7.5% year over year. Core prices, less food and energy, also rose 0.6% in January and are up 6.0% over the past 12 months, the largest 12-month increase since the period ended in August 1982.
· The Treasury budget for January posted a surplus of $118.7 billion, the first monthly surplus since September 2019. The January 2021 budget ran at a deficit of $162.8 billion. Compared to January 2021, budget expenditures for January 2022 were down 37.0%, while government receipts were up 21.0%. Through the first four months of the fiscal year, the budget deficit is $259.0 billion, 65.0% lower than the deficit over the same four months of the previous fiscal year, as government expenditures fell 8.0% while receipts rose 28.0%. Over the first four months of this fiscal year compared to the same period for fiscal 2021, individual income tax receipts are up 43.0% and corporate tax receipts increased 32.0%.
· The goods and services trade deficit was $80.7 billion in December 2021, $1.4 billion, or 1.8%, above the November deficit. In December, exports rose 1.5% and imports increased 1.6%. For 2021, the goods and services deficit increased $182.4 billion, or 27.0%, from 2020. Exports increased $394.1 billion, or 18.5%. Imports increased $576.5 billion, or 20.5%. Of particular note in December, the U.S. trade deficit with China increased by $6.0 billion, the trade deficit with South Korea increased by $1.4 billion, while the trade deficit with the European Union decreased $3.0 billion.
· The national average retail price for regular gasoline was $3.444 per gallon on February 7, $0.076 per gallon more than the prior week’s price and $0.983 higher than a year ago.
· Weekly claims for unemployment insurance benefits continue to decline. For the week ended February 5, there were 223,000 new claims for unemployment insurance, a decrease of 16,000 from the previous week’s level, which was revised up by 1,000.
Eye on the Week Ahead
Inflation and housing information take the stage this week. Inflationary indicators available this week include the latest Producer Price Index, import and export prices, and the retail sales report. Producer prices slowed in December, increasing only 0.2%. However, since December 2020, producer prices rose nearly 10.0%. Both import and export prices have also been on the rise. For the 12 months ended in December 2021, import prices climbed 10.4% and export prices advanced 14.7%. Sales at the retail level actually receded in November and December 2021. However, retail sales increased 19.3% in 2021. The housing sector has been a mixed bag of late, with existing home sales falling 4.6% in December, while new home sales rose. That trend is likely to continue as December saw building permits (+9.1%) and housing starts (+1.4%) increase, which should increase the inventory of new homes for sale.
Have a nice week!
Sincerely,
Robert G. Carpenter