2022 Midyear Outlook: Slow Growth Ahead?

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As we move into the second half of 2022, there are lots of things to worry about. Covid-19 is still spreading, here in the U.S. and worldwide. Inflation is close to 40-year highs, with the Fed tightening monetary policy to fight it. The war in Ukraine continues, threatening to turn into a long-term frozen conflict. And here in the U.S., the midterm elections loom. Looking at the headlines, you might expect the economy to be in rough shape.

But when you look at the economic data? The news is largely good. Job growth continues to be strong, and the labor market remains very tight. Despite an erosion of confidence driven by high inflation and gas prices, consumers are still shopping. Businesses, driven by consumer demand and the labor shortage, continue to hire as much as they can (and to invest when they can’t). In other words, the economy remains not only healthy but strong—despite what the headlines might say.

Still, markets are reflecting the headlines more than the economy, as they tend to do in the short term. They’re down substantially from the start of the year but showing signs of stabilization. A growing economy tends to support markets, and that may be finally kicking in.

With so much in flux, what’s the outlook for the rest of the year? To help answer that question, we need to start with the fundamentals.

The Economy

Growth drivers. Given its current momentum, the economy should keep growing through the rest of the year. Job growth has been strong. And with the high number of vacancies, that will continue through year-end. At the current job growth rate of about 400,000 per month, and with 11.5 million jobs unfilled, we can keep growing at current rates and still end the year with more open jobs than at any point before the pandemic. This is the key to the rest of the year.

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