• If the public health situation in the U.S. keeps improving, the 2022 economic outlook would likely remain solid. However, the Russia-Ukraine armed conflict adds uncertainty, which could affect our view.
• Economic activity picked up dramatically, with especially impressive job market reports.
• Given increasing price readings, we expect up to six rate hikes in 2022, with a 25-bps hike in March all but certain.

Virus and mobility

COVID-19 cases:   As of Feb. 28, new cases (seven-day moving average) fell sharply by 91% to 69, which is 549 from its recent peak (Jan. 15) and below the level right before the current wave. Daily new deaths (seven-day moving average), at 1,933 on Feb. 28, also went down by 24% from its peak on Feb. 7. Approximately 76.4% of the population received at least one dose of the vaccine, 65% are fully vaccinated, and 44% of the population also received a booster dose.

Mobility:   Google mobility levels on Feb. 24 is still 11 percentage points below its pre-pandemic norm in early 2020 but has improved sharply from its recent low of 21% on Jan. 7. Some densely populated states, such as New York and California, still have mobility levels around 20% below their pre-pandemic levels.

People-facing COVID-19-sensitive

Open Table:   The national average of seated dinners has now recovered to 1.68% above its 2019 baseline, after a sharp contraction in early January 2022 to 33% below its pre-pandemic norm.

Air traffic:   Check point numbers reached the highest level since the start of the pandemic on Feb. 28, at 9.36% below the pre-pandemic norm. The current wave only slightly discouraged air traffic, bringing check point numbers down to 28% below the 2019 baseline in late January from 10% below in late December 2021.

Hotel occupancy:   The hotel occupancy rate reached 59.1% for the week ended Feb. 19, only 7 pps below the pre-COVID-19 levels and 10 pps higher than the levels on Jan. 15. Leisure activity seems to have improved, while business travel restrictions continue to hold back overall travel. According to the American Hotel and Lodging Assn., business travel is likely to remain more than 20% down for 2022.

Current and future activity

Weekly Economic Index (WRI):   The WEI came in at 6.84% year over year for the week ended Feb. 19. The index remained strong at the start of 2022, even after base effects stopped playing a major role in explaining heightened economic activity growth.

Purchasing managers' index (PMI) measures:   The Taiwan Manufacturing January PMI index dropped by 3 points to 56, while new orders and backorders subindices fell by 7 and 1 points to 53 and 55, respectively. Although still high, they are well below their April high, suggesting some improvement in semiconductor production shortage. The U.S. manufacturing PMI rose 1 point to 58.6 in February with most components up. Prices paid slipped 0.5 points to a still-high 75.6, though below its 42-year high of 92.1 in June.

Business applications from corporations:   As of Feb. 19, applications were 20.6% above pre-pandemic levels, recovering from a 12.3% drop below the 2019 average in the first week of January. Business applications have been above their 2019 levels throughout 2021. At the industry level, the increase in new business applications is being led by the retail trade and transpiration sector of the economy.

Raw steel capacity:   Raw steel capacity utilization, at 80.1 for the week ended Feb. 23, dropped below its 2019 average for the first time in the week ended Feb. 16, after staying above the pre-pandemic level since June 2021.

Home mortgage applications:   The purchase index edged down by 1.2% for the week ended Feb. 11 compared with last week but is still 13% higher than its near-term low for the week ended July 30, 2021. As the 30- year fixed rate, now at 3.89% as of Feb. 24, increased to its highest level since March 2020, people wanted to get ahead of higher interest rates later this year.

Johnson Redbook Same-st Index:   For the week ended Feb. 25, the same-store sales index increased by 13.4% on a year-over-year basis (four-week moving average), slightly down from the previous week but well above pre-COVID-19 levels as consumer spending remained strong. With higher prices, people are buying fewer items with every dollar spent.

Consumer confidence:  The University of Michigan consumer sentiment plunged to 62.8 in the final February reading, the lowest since October 2010. Both current and expectations indices fell to decade lows. The Ipsos-Forbes Advisor biweekly consumer confidence index dropped to 53 on Feb. 24, remaining below its over-60 near-term high in the second quarter of 2021. Elevated and broad-based inflation will continue to discourage consumer sentiments and challenge consumer spending in February.

Prices

Lumber futures:  Lumber futures prices, at $1,330 per 1,000 board feet on Feb. 28, increased by 30% in the past month, almost 3x its Sept. 15 low. The increase comes amid stronger willingness to buy before the fed rate hike, and continued supply chain constraints and higher U.S. tariff rates take effect on Canadian softwood lumber. They are 21% below the May 2021 all-time high.

Industrial metal price index:  The industrial metal price index increased to a new high of $1,778 per point as of Feb. 28, on the back of limited supply and high demand spurred by the recovery. The metal price index is now 64% above its 2019 average. The recent Russia and Ukraine conflicts may push metal prices even higher as metal-related products are among the major exports of the two countries.

Baltic dry exchange:   The Baltic dry index increased by 48% from last month, climbing to 2,040 as of Feb. 28--but it remained 64% lower than its multidecade high in October 2021. A drop in freight rates from its October 2021 high was partly attributed to a slowdown in iron ore stockpiling in China.

Gasoline prices:  Gasoline prices remained elevated. The gasoline price per gallon was at $3.7 for the week ended Feb. 28, 54% higher than its pre-pandemic level in February 2020 and near its seven-year high. It is a major attributing factor of soaring inflation.

Forward inflation expectations:   Five and 10-year long-term inflation expectations readings, at 2.10 and 2.62 as of Feb. 28, respectively, are higher than their January averages but lower than their respective multidecade peaks of 2.39 in October 2021 and 2.73 in November 2021. University of Michigan inflation expectations one year and five years ahead are at respective 14-year and 11-year highs--all reason for the Fed to launch its interest rate policy rocket in March and fly high through the year.

Labor market

Bureau of Labor Statistics (BLS) payrolls:   As omicron cases decline, February payrolls climbed 678,00 for the month with a net 92,000 two-month gain the prior two months. The unemployment rate fell to 3.9% from 4.0%. Strong job gains with surging prices give the Fed reason to raise rates by 25 basis points (bps) in March. We expect five more rate hikes this year. But the Russian-Ukraine conflict adds uncertainty to their policy path.

Initial jobless claims versus Indeed job postings:  Job market conditions remained strong, suggesting hiring momentum continued through February, with initial jobless claims for the week ended Feb. 26 down by 18,000 from the previous week to 218,000 as COVID-19 cases decline amid tight market conditions. Indeed job postings went down slightly in the week of Feb. 25, 2022 as some hiring demand is met, but remained 60% higher than its level on Feb. 1, 2020.