H2 2021 Economy, Inflation Rise As Labor Tightens 3-1-22 – The Federal Reserve Bank submitted a report on the economy to Congress Friday saying economic activity posted “impressive gains” in the last half of 2021, but inflation rose to its highest level since the early 1980s. The labor market tightened substantially as well amid high demand for employees faced off with constricted supply, the bank said in a release. Also, wages rose at their fastest pace in decades, and shipping bottlenecks continued. As 2022 began, the rapid spread of the Omicron variant of COVID-19 was slowing down some sectors of the economy, but with cases declining since mid-January, the Omicron-related slowdown was expected to be brief, the release said. FOMC BEGINS BELT-TIGHTENING Over the second half of 2021, the Federal Open Market Committee held the Federal Funds rate near zero to support the continued economic recovery, the release said. The committee began phasing out net asset purchases in November and accelerated the pace of this phaseout in December. Net asset purchases were scheduled to end in early March. With inflation well above the FOMC’s longer-run objective and a strong labor market, the FOMC expected it will soon be appropriate to raise the target range for the Fed Funds rate, the release said. H2 2021 GDP GROWTH SLOWS In the second half of 2021, gross domestic product growth slowed from its brisk first-half pace, but rose at a solid annualized rate of 4.6%, the release said. Average monthly job gains remained robust at 575,000. The unemployment rate has plummeted almost two percentage points since June and, at 4% in January, reached the median of FOMC participants’ estimates of its longer-run normal level. Moreover, unemployment declines have been widespread across demographic groups, the Bank said. However, labor force participation only crept up last year and remains constrained. The tight labor supply, in conjunction with a continued surge in labor demand, resulted in strong nominal wage growth, especially for low-wage employees, the release said. Supply bottlenecks also continued to limit activity throughout the second half, while the Delta and Omicron waves led to notable, but apparently temporary, slowdowns in activity, the bank said. INFLATION RISES The personal consumption expenditures price index rose 5.8% over the 12 months ending in December, and the index that excludes food and energy items (so-called core inflation) was up 4.9%, the highest readings for both measures in roughly 40 years, the Bank said. Rising prices of goods experiencing supply chain bottlenecks and strong demand, such as motor vehicles and furniture, persisted. CATTLE, BEEF RECAP The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $142.00 to $144.23 per cwt, compared with last week’s range of $140.55 to $143.00. FOB dressed steers and heifers went for $221.90 to $224.84 per cwt, versus $218.70 to $224.02. The USDA choice cutout Monday was down $0.76 per cwt at $257.51, while select was off $2.00 at $253.41. The choice/select spread widened to $4.10 from $2.86 with 68 loads of fabricated product and 17 loads of trimmings and grinds sold into the spot market. The USDA reported that basis bids for corn from feeders in the Southern Plains were $1.15 to $1.25 a bushel over the May futures and for southwest Kansas were down $0.05 at $0.15 over Mar. No contracts were tendered for delivery against Feb contract on Monday. The CME Feeder Cattle Index for the seven days ended Friday was $159.91 per cwt down $0.67. This compares with Monday’s Mar contract settlement of $157.72 per cwt, down $2.30. IN OUR OPINION –The US, Canada, the UK and the EU have slapped sanctions on Russia’s central bank and sovereign wealth funds, freezing assets and banning dealings with Russian financial institutions in the sanction war against Russia for its invasion of Ukraine, according to Al Jazeera. The action means the Russian ruble is almost worthless around the world, and the government can’t use its reserve to prop up the currency’s value. National Public Radio reported that the action caused a run on Russian banks of depositors wishing to get their money, or even SOME money. Imported products will be much higher priced for the Russian populace, and soon may not be available at all. Al Jazeera quoted US Treasury Secretary Janet Yellen saying the actions would limit Russia’s ability to use the frozen assets to finance its war activities. The Russian people will suffer for this invasion, but President Putin probably won’t pull invading troops out of Ukraine

The Federal Reserve Bank submitted a report on the economy to Congress Friday saying economic activity posted “impressive gains” in the last half of 2021, but inflation rose to its highest level since the early 1980s.

The labor market tightened substantially as well amid high demand for employees faced off with constricted supply, the bank said in a release.  Also, wages rose at their fastest pace in decades, and shipping bottlenecks continued.

As 2022 began, the rapid spread of the Omicron variant of COVID-19 was slowing down some sectors of the economy, but with cases declining since mid-January, the Omicron-related slowdown was expected to be brief, the release said.

 

FOMC BEGINS BELT-TIGHTENING

 

Over the second half of 2021, the Federal Open Market Committee held the Federal Funds rate near zero to support the continued economic recovery, the release said.  The committee began phasing out net asset purchases in November and accelerated the pace of this phaseout in December.  Net asset purchases were scheduled to end in early March.

With inflation well above the FOMC’s longer-run objective and a strong labor market, the FOMC expected it will soon be appropriate to raise the target range for the Fed Funds rate, the release said.

 

H2 2021 GDP GROWTH SLOWS

 

In the second half of 2021, gross domestic product growth slowed from its brisk first-half pace, but rose at a solid annualized rate of 4.6%, the release said.  Average monthly job gains remained robust at 575,000.

The unemployment rate has plummeted almost two percentage points since June and, at 4% in January, reached the median of FOMC participants’ estimates of its longer-run normal level.

Moreover, unemployment declines have been widespread across demographic groups, the Bank said.  However, labor force participation only crept up last year and remains constrained.

The tight labor supply, in conjunction with a continued surge in labor demand, resulted in strong nominal wage growth, especially for low-wage employees, the release said.

Supply bottlenecks also continued to limit activity throughout the second half, while the Delta and Omicron waves led to notable, but apparently temporary, slowdowns in activity, the bank said.

 

INFLATION RISES

 

The personal consumption expenditures price index rose 5.8% over the 12 months ending in December, and the index that excludes food and energy items (so-called core inflation) was up 4.9%, the highest readings for both measures in roughly 40 years, the Bank said.  Rising prices of goods experiencing supply chain bottlenecks and strong demand, such as motor vehicles and furniture, persisted.

 

CATTLE, BEEF RECAP

 

The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $142.00 to $144.23 per cwt, compared with last week’s range of $140.55 to $143.00.  FOB dressed steers and heifers went for $221.90 to $224.84 per cwt, versus $218.70 to $224.02.

The USDA choice cutout Monday was down $0.76 per cwt at $257.51, while select was off $2.00 at $253.41.  The choice/select spread widened to $4.10 from $2.86 with 68 loads of fabricated product and 17 loads of trimmings and grinds sold into the spot market.

The USDA reported that basis bids for corn from feeders in the Southern Plains were $1.15 to $1.25 a bushel over the May futures and for southwest Kansas were down $0.05 at $0.15 over Mar.

No contracts were tendered for delivery against Feb contract on Monday.

The CME Feeder Cattle Index for the seven days ended Friday was $159.91 per cwt down $0.67.  This compares with Monday’s Mar contract settlement of $157.72 per cwt, down $2.30.