- Sept. 13, 2022
-- While back-to-school season is just getting underway, investors are already well into an eventful year. Markets mustered a gain last week, snapping a three-week losing streak, as the focus remains on Fed rate hikes, inflation, and their implications for the economy ahead. But if we widen the view, 2022 has not lived up to its potential. As we head into the homestretch for the year, let's take a look at 2022's report card so far.
Here are a few of our key views that we outlined coming into 2022, how reality has compared to those expectations, and the implications they have for the path ahead:1. Economic growth
2022 Expectation: The reopening's next phase gives the economy a second wind.
2022 Reality: GDP contracted in the first half of the year.
- Notable imbalances and distortions in the economy were created by the pandemic shutdown. These included significant impairments to global supply chains, record-high household savings, and increased consumer spending on goods relative to services.
- The economic discussion shifted quickly from reopening to recession, with a negative sign in front of GDP growth for the first and second quarters of this year. Rising food and energy prices alongside falling consumer sentiment played a role, but the underpinnings of the economy are not as weak as the headline GDP figures suggests.
2. Labor market
- We think GDP will return to positive territory for the second half of the year, though monetary-policy headwinds have raised the risk of recession. If an official recession transpires, we think it will be relatively mild, helped by the starting point of strength and the lack of financial imbalances or shocks that traditionally exacerbate downturns.
2022 Expectation: The unemployment rate falls below 4%.
2022 Reality: Unemployment reached 50-year low as labor market remains healthy
- We saw a healthy labor market getting even tighter this year amid a return to full employment and strong hiring demand to meet elevated demand.
- We expected this to push the unemployment rate back below 4%, from an average of 5.4% for 2021, and keep wage growth elevated through the year.
- The labor market has lived up to lofty expectations, remaining the brightest spot in an economy that is facing headwinds from rising rates and elevated consumer prices. Total employment has returned to where it stood before the pandemic, though payrolls in the leisure and hospitality sector remain under water.
- We think some cracks will emerge in the otherwise solid labor-market foundation. Slowing demand will likely spur hiring freezes and layoffs in certain industries, as has already been the case in pockets of the technology sector.