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Friday, March 4, 2022
Shopping, and driving, through the era of high costs
Every now and again, we here at the Morning Brief delight in bringing our readers some good news that helps leaven a news diet filled with grim to outright depressing news. As Russia continues its brutal frontal assault on Ukraine — which continues to whipsaw markets — there are still signs of encouragement in an unpredictable world that’s spiraling into near-anarchy.
The labor market is as resilient as it has ever been, and is poised to improve even further as the Omicron wave retreats into relative obscurity. We’ll know more when February’s payrolls data is released later this morning, but it appears more than likely that we’re in for an upside surprise.
The jobs data is consistent with other high frequency data releases that, as the Wall Street Journal put it earlier this week, positions the U.S. “to withstand the economic shock that might emanate from battlegrounds in Ukraine.” Even as surging energy prices and the fallout from punitive Russian sanctions ricochet across the global economy, “the economic expansion appears to be on solid ground,” The WSJ’s Jon Hisenrath wrote.
“We are seeing a post-Omicron snapback in some of the economic data, COVID is not in the picture as much anymore but that’s good in terms of economic backdrop,” John Hancock Investment Management Co-Chief Investment Strategist Matthew Miskin told Yahoo Finance Live on Thursday. “We do see the U.S. economy holding in relatively well, all things considered.”
Plentiful employment, of course, is feeding the problem of insatiable demand that’s also feeding the supply chain crisis. Demand is also spurring higher prices in everything from food to energy, and those effects are unlikely to see appreciable relief, as Yahoo Finance’s Ihsaan Fanusie wrote on Thursday. In recent days, wheat futures have captivated market watchers, with prices hitting their highest in over a decade.
Food inflation is just one way consumers are being financially squeezed; the other is at the gas pump, which effectively acts as a tax on earnings for many drivers. Yahoo Finance’s Dani Romero’s dispatch from Southern California highlighted how car owners are being “blown away” by soaring prices — inching toward $4 per gallon nationwide and above $5 in the Golden State.
The news gets worse. Given that drivers in many car-culture oriented states are tethered to their vehicles for professional and personal reasons, higher prices are unlikely to dissuade them from continuing to buy costlier fuel, out of necessity and/or convenience. The same effect that has prompted consumers to keep shopping through pandemic-era inflation hint at a couple of developments.
The first is that, at multiple levels, economic activity appears to be resetting itself at higher price points (which is one reason why the Federal Reserve feels comfortable tightening monetary policy, although just how much remains an open question). As the Morning Brief has noted before, prices this high are unlikely to come back down — especially with consumers paying them and corporate profits continuing to grow.
The second relates to increasingly high energy prices. Even as the U.S. churns out more of its oil, a development that will put America and the world on a path to secure and stable energy supplies, relief at the pump is unlikely to come soon.
One very important reason why is that booming U.S. energy production won’t translate into lower prices at the pump, primarily because domestic crude really can’t be used to meet gasoline demand. That means the country is still reliant on international (Brent) oil, which briefly tested $120 per barrel.
“It’s a heavier, sour crude … more geared towards the industrial side,” CIBC Private Wealth’s Rebecca Babin told Yahoo Finance Live on Thursday.
“The U.S. produces a sweet crude … you can’t just replace Russian crude with U.S. crude … it doesn’t match up in terms of what it can be refined into,” she added.
So for the foreseeable future, and absent a demand shock or substantial foreign supply, consumers will have to keep driving through it — mainly because they don’t have any other choice.
By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek
What to watch today
8:30 a.m. ET: Change in Non-farm Payrolls, February (423,000 expected, 407,000 during prior month)
8:30 a.m. ET: Unemployment Rate, February (3.9% expected, 4.0% during prior month)
8:30 a.m. ET: Average Hourly Earnings, month-over-month, February (0.5% expected, 0.7% during prior month)
8:30 a.m. ET: Average Hourly Earnings, year-over-year, February (5.8% expected, 5.7% prior month)
8:30 a.m. ET: Labor Force Participation Rate, February (62.2% expected, 62.2% during prior month)
8:30 a.m. ET: Underemployment Rate, February (7.0% prior month)
European stock markets in the red after Russia’s alleged attack on Ukraine nuclear plant [Yahoo Finance UK]
U.S. funding stress metric rises again [Reuters]
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Fed Chairman Powell: ‘We should have moved earlier’ [Yahoo Finance]
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