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Key Points for the Week

  • The U.S. created 431,000 jobs last month, and unemployment dipped to 3.6%, signaling that the economy remains strong.
  • The S&P 500 fell last quarter. It was the only negative quarter in the last two years.
  • More of the yield curve inverted as the yields on bonds maturing in two, three, five, and seven years moved above 10-year yields.

Congress recently asked the Federal Reserve to use its tools to promote price stability and maximum employment. Last week, economic data provided information about both.

Inflation continued to increase

Price stability means ensuring the prices of goods and services increase at a slow and stable pace. Last week, the Bureau of Economic Analysis reported that consumer prices rose 5.4 percent, year-over-year in February, excluding food and energy. When food and energy were included, inflation increased 6.4 percent.

Personal income increased, too, but not quite as quickly as inflation did.

The Fed’s target for inflation is 2 percent. To bring inflation into line, the Fed has begun tightening monetary policy. So far, it has ended asset purchases and started raising the federal funds target rate. Next, it will begin to shrink its balance sheet. However, the war in Ukraine and a new COVID-19 outbreak in China are complicating the Fed’s inflation calculations.

Unemployment remained low

Maximum employment is:

…the highest level of employment the economy can sustain without generating unwelcome inflation It describes an economy in which nearly everyone who wants to work has a job.

Lorena Hernandez Barcena and David Wessel, Brookings

Not everyone who wants a job has one, but last week’s employment report from the Bureau of Labor Statistics showed the unemployment rate was quite low at 3.6 percent, overall. When the statistic is viewed by gender and race:

  • Men have a 3.1 percent unemployment rate with 70.6 percent participation,
  • Women a 2.8 percent unemployment rate with 57.2 percent participation,
  • Asian people a 2.8 percent unemployment rate with 64 percent participation,
  • White people a 3.2 percent unemployment rate with 60.3 percent participation,
  • Hispanic people a 4.2 percent unemployment rate with 66.4 percent participation, and
  • Black people a 6.2 percent unemployment rate with 62.1 percent participation.

This Week in the Markets

The U.S. economy has continued to create jobs. The establishment report, which measures jobs at known entities, added 431,000 new jobs last month. Economists expected 478,000 new jobs. The previous two months were revised higher by nearly 100,000, making up for the slight miss. Unemployment dipped to 3.6%, according to the household survey, which includes self-employed workers. The household survey indicated the labor force grew to 164.4 million, supporting the idea people are returning to the labor force.

Concerns about rates rising quickly in response to inflation have inverted parts of the yield curve. The 10-year yield is now higher than yields from two-year to seven-year bonds. The expanded yield curve ignited discussion regarding whether the move signals a recession is likely. We believe inverted yield curves are more likely to indicate the economy will slow rather than cause a recession to occur.

CTN 04-04-22 Image 1

The S&P 500 posted its first negative quarter in two years. The index of large U.S. companies slipped while global stocks also declined as the response to Russia’s invasion of Ukraine is likely to affect European countries more than the U.S. The Bloomberg U.S. Aggregate Bond Index also fell. Higher rates and ongoing inflation pushed bond yields higher.

The Jobs Market Keeps Growing

The economy created 431,000 jobs last month. People working hard to be pessimistic could point out that the number missed expectations of 478,000 and was the slowest growth in the last six months. Both statements are true but do not overcome the core conclusion that job creation remains strong.

The household survey indicated unemployment fell to 3.6% even though the labor force grew by 418,000. Higher wages and falling COVID risks have combined with less generous unemployment benefits to push people back to work. The decline in unemployment means more jobs are being created than new people are entering the labor force.

Retaining workers remains a challenge. Average hourly earnings increased 0.4%. Wage pressures suggest inflation is becoming more deeply imbedded in the U.S. economy. Employees are also quitting their jobs at a rapid rate. More than 4.25 million people are estimated to have quit their jobs in February. Workers are hard to retain because short-staffed employers are raising pay and luring workers away.

All this job growth is fueling expectations inflationary pressures will remain strong. The PCE inflation index rose 0.6% last month, and core inflation, which excludes food and energy, rose 0.4%. The big driver of inflation is the price of goods, which rose 1.1% in February. Services inflation climbed 0.4%, which is still fast but much closer to the Fed’s stated goal of just less than 0.2% each month.

The strength of the recovery is causing many to reassess their interest rate expectations. One month ago, most investors expected a pair of 0.25% increases at the May and June meetings. Base expectations are rates will now increase 0.5% each meeting.

The expectation for a faster increase in rates has pushed short and intermediate-term rates higher, creating an inverted yield curve. What has been interesting is long-term rates aren’t moving higher as quickly as short-term rates. This interest rate trend reflects an expectation the Fed will raise rates quickly and perhaps too far and then reverse that decision as inflation fades and the economy doesn’t grow fast enough to match the supply of labor joining the workforce.

The news media loves to talk about inverted yield curves and frequently cites various indicators successfully forecasting the last nine or more recessions. Like some baseball records, that effectiveness deserves an asterisk. When the yield curve inverted in 2019, the Fed responded with three quick rate decreases and the economy continued to strengthen with acceptable inflation. A recession caused by tight rates was improbable. The recession only came about because of COVID and policy responses to try contain the spread.

Strategic Petroleum Reserve

President Biden announced the largest release ever from the Strategic Petroleum Reserve. This Reserve was established for emergencies and has been used after Hurricane Katrina and after turmoil in the Middle East. These past two releases have been effective in alleviating short-term supply disruptions. What remains unknown is the duration of the current disruption related to the Russian invasion of Ukraine. If this disruption persists, then demand pressures will eventually overwhelm supply and drive prices higher. Under this scenario, the price for oil will not decline until supply is expanded. If the disruption is short-term, then this release will provide the necessary supply to mitigate the current rise in the price of oil. Longer term, the price for oil may be decided by decisions related to leasing and production.

IRS Issues Identity Theft Warning

The IRS is reminding taxpayers to be vigilant and watch out for IRS impersonation scams intended to trick them into providing their personal and financial information. Some of the schemes included text message, e-mail, and phone scams. The IRS also warns people to be aware of potential unemployment fraud.

Text Message Scams

If you receive an unsolicited text message claiming to be from the IRS or a program linked to the IRS, take a screenshot of the message and email it to with the below information:

  • Date/time/time zone the text message was received.
  • Phone number that received the text message.
  • Do not click on links or attachments from suspicious or unexpected messages.

E-mail Phishing Scams

Please be aware that the IRS does not contact taxpayers by email to request personal or financial information. Most of the time, the IRS will contact taxpayers through regular mail delivered by the United States Postal Service. Similar to a potential text message scam, report the email to by sending the suspicious email as an attachment.

Phone Scams

The IRS (and its authorized private collection agencies) will never:

  • Call requesting immediate payment using prepaid debit cards, gift cards, or wire transfer.
  • Threaten to arrest a taxpayer by bringing in law-enforcement or local police.
  • Demand taxes be paid without the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone

Unemployment Fraud

Organized crime rings have started using stolen identities to claim unemployment or other benefits for which the taxpayer never applied. Victims of unemployment identity theft may receive:

  • Mail from a government agency about an unemployment claim or payment they did not file.
  • An IRS Form 1099-G reflecting benefits that were not expected or received. The form itself may also be from a state for which the taxpayer did not file for benefits.

For information on necessary steps to take for suspected unemployment fraud, taxpayers can visit the U.S. Department of Labor’s fraud page here.

The IRS focuses on tax-related identity theft and suggested taxpayers take the below steps if they feel their Social Security number has been compromised:

  • Respond immediately to any IRS notice and call the number provided.
  • Complete IRS Form 14039 (Identity Theft affidavit).
  • Continue to pay their taxes and file their tax return, even if it must be done by paper.
  • For specialized assistance, call 1-800-908-4490.

If you have any questions about this information, please contact us.

Did you Know? This Week in History

April 6, 1896: First Modern Olympic Games

On April 6, 1896, the Olympic Games, a long-lost tradition of ancient Greece, were reborn in Athens 1,500 years after being banned by Roman Emperor Theodosius I. At the opening of the Athens Games, King Georgios I of Greece and a crowd of 60,000 spectators welcomed athletes from 13 nations to the international competition.

The first recorded Olympic Games were held at Olympia in the Greek city-state of Elis in 776 B.C., but it is generally accepted that the Olympics were at least 500 years old at that time. The ancient Olympics, held every four years, occurred during a religious festival honoring the Greek god Zeus. In the eighth century B.C., contestants came from a dozen or more Greek cities, and by the fifth century B.C. from as many as 100 cities from throughout the Greek empire. Initially, Olympic competition was limited to foot races, but later a number of other events were added, including wrestling, boxing, horse and chariot racing, and military competitions. The pentathlon, introduced in 708 B.C., consisted of a foot race, the long jump, discus and javelin throws, and wrestling. With the rise of Rome, the Olympics declined, and in 393 A.D. the Roman Emperor Theodosius I, a Christian, abolished the Games as part of his efforts to suppress paganism in the Roman Empire.

In Athens, 280 participants from 13 nations competed in 43 events, covering track-and-field, swimming, gymnastics, cycling, wrestling, weightlifting, fencing, shooting, and tennis. The 1896 Olympics also featured the first marathon competition, which followed the 25-mile route run by a Greek soldier who brought news of a victory over the Persians from Marathon to Athens in 490 B.C. In 1924, the marathon was standardized at 26 miles and 385 yards. Appropriately, a Greek, Spyridon Louis, won the first marathon at the 1896 Athens Games.

Weekly Focus

Subjectivity is just objectivity waiting for data.

Dave Eggers, American Writer

My health is good; it’s my age that’s bad.

Roy Acuff, American Singer