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Gene Walden
Senior Finance Editor

MAY 2022 MARKET UPDATE

Labor demand surges despite rocky market & economic turbulence

05/06/2022
By Gene Walden, Senior Finance Editor | 05/06/2022

Thrivent Asset Management Contributors to this report: Steve Lowe, CFA, Chief Investment Strategist; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Model Portfolio Manager

Even with inflation on the rise and bond and stock markets struggling, businesses continued to face a severe labor shortage.

Job openings reached a record level of 11.5 million in March, according to a report from the U.S. Bureau of Labor Statistics issued on May 3. Job openings rose by 155,000 for the month in the retail trade and 50,000 among durable goods manufacturers to lead all industries.

The labor shortage has been exacerbated by the “Great Resignation,” with at least 4 million American workers leaving their jobs each month for the past 10 months. That number reached a record 4.5 million worker defections in March.

According to the report, the number of job openings is approximately double the number of people looking for work. The labor demand has helped push up pay levels – with average earnings increasing by 5.5% over the past 12 months through April – but real inflation-adjusted wages have actually fallen about 3.7% due to rising prices of goods and services. Employers have added more than 2 million new jobs through the first four months of 2022.

Despite labor shortages, manufacturing operations have continued to report strong activity, although the growth rate declined slightly in April, according to the Institute for Supply Management (ISM). In its May 1 report, ISM said overall manufacturing growth has continued for 23 consecutive months, with 17 of the 18 industries they track reporting growth in April. However, manufacturers continue to face cost increases and supply chain issues, with Covid-19 shut-downs in China contributing further to the delays.

In other developments:

  • As expected, the Federal Reserve (Fed) raised rates by 0.5% at its May 4 meeting in an effort to tame rising inflation. It was the largest rate hike in 22 years. The Fed is expected to continue to raise rates throughout the coming year. The rising rates have triggered a sharp decline in bond prices, with the Bloomberg U.S. Aggregate Bond Index (which tracks the high-grade bond market) declining about 10% year to date. (See: Bond slump of 2022: Expectations & historical parallels)
  • Economic growth took a step back in the 1st quarter, as gross domestic product (GDP) declined 1.4% (on an annualized basis), failing to meet modest expectations of about a 1% gain. That followed a 6.9% annualized increase in the 4th quarter of 2021. According to the Department of Commerce, the 1st quarter decline was the result of a variety of factors, including a resurgence of Covid-19 cases, rising inflation, and the war in Ukraine.
  • The price index for gross domestic purchases was up 7.8% (annualized) in the 1st quarter after a 7.0% annualized increase in the 4th quarter of 2021. The index for personal consumption expenditures (PCE) was up 7.0% in the 1st quarter – but up 5.2% excluding food and energy prices – compared with a 6.4% increase through the 4th quarter. Disposable personal income was up 4.8% in the quarter, but real disposable personal income actually declined 2.0% after factoring in the effects of inflation.
  • Stocks were hammered in April, with the S&P 500® declining 8.80%, NASDAQ plunging 13.26%, and the MSCI EAFE Index, which tracks developed-economy stocks in Europe, Asia, and Australia, declining 6.78%.

Drilling down

U.S. stocks stumble

With concerns over rising interest rates, inflation, and the war in Ukraine, the S&P 500 went into reverse in April after a 3.58% gain in March. The index dropped 8.23% for the month, from 4,530.41 at the end of March to 4,131.93 at the April close. The total return, including dividends, was down 8.72% for the month and down 12.92% through the first four months of the year. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The NASDAQ Index fared even worse in April, down 13.26% for the month, from 14,220.52 at the March close to 12,334.64 at the end of April. Year-to-date, the NASDAQ was down 21.16%. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales edge up

Retail sales were up 0.5% in March, according to the Department of Commerce retail sales report issued April 14. Compared with the same period a year earlier, retail sales were up 6.9% in March.

Building material sales were up 0.5% for the month of March and up 0.5% compared with March 2021, while auto sales dropped 2.1% for the month and 1.6% from a year earlier; department store sales were down 0.3% for the month but up 7.4% from a year earlier.

Non-store retailers (primarily online) fell off dramatically in March, down 6.4% for the month, but were still 1.8% higher than a year earlier.

Sales for food services and drinking places edged up 1.0% in March and were up 19.4% from a year earlier with more Americans returning to bars and restaurants as Covid-19 restrictions eased.

Employment growth continues

Employers added 428,000 new jobs in April, according to the Employment Situation Report issued May 6 by the Department of Labor. That followed solid job growth of 431,000 new jobs in March, 750,000 new jobs in February, and 504,000 new jobs in January. The unemployment rate remained the same at 3.6%, as more people seeking work entered the job market.

Employment growth was solid across multiple industries, led by leisure and hospitality, manufacturing, and transportation and warehousing. Total number of unemployed persons remained unchanged at 5.9 million, which is very close to the 5.7 million unemployed persons prior to the pandemic in February 2020. But the demand for workers has continued to rise this year – reaching a record 11.5 million job openings in March – as employers vied for qualified workers to fill vacancies.

Average hourly earnings for all employees on private nonfarm payrolls was up $0.10 per hour in April at $31.85 per hour. Over the past 12 months, average earnings have increased by 5.5%.

Consumer Staples only positive sector in April

The Consumer Staples sector of the S&P 500, which moved up 2.56% in April, was the only sector in positive territory for the month. It was also one of only three sectors above water for the year, up 1.53%. The other positive sectors through the first four months of 2022 were Energy, up 36.89%, and Utilities, up 0.32%. Technology stocks were battered in April, with Information Technology down 11.28% and Communications Services down 15.62%.

Treasury yields jump again

Bond yields moved up sharply in April as the Fed continued to raise rates. After rising 0.81% in the 1st quarter, the yield on 10-year U.S. Treasuries rose an additional 0.57% in April, from 2.32% to 2.89%. Rising interest rates have driven the price of high-grade bond prices down about 10% this year.

Oil prices climb higher

Oil prices continued to climb in April as businesses reopened from the pandemic, compounded by the boycott of Russian oil in response to the Ukraine attack. West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, was up 4.40% in April, from $100.28 per barrel at the end of March to $104.69 at the April close. Oil prices were up 39.20% since the start of the year.

Gasoline prices at the pump actually dropped 3.06% in April, with the national average declining from $4.34 per gallon at the end of March to $4.21 at the April close. However, gasoline prices are still up 24.77% since the start of the year.

International equities drop

As war in Ukraine continued, international equities struggled in April. The MSCI EAFE Index dropped 6.78% for the month, from 2,181.63 at the end of March to 2,033.70 at the April close. For the year, the index was down 12.94%.


For more on the markets and rising interest rates, see: Bond slump of 2022: Expectations & historical parallels, by Steve Lowe, Chief Investment Strategist, Thrivent Asset Management


Media contact: Callie Briese, 612-844-7340; callie.briese@thrivent.com

All information and representations herein are as of 05/06/2022, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product.  Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.

Past performance is not necessarily indicative of future results.


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