US economy doesn’t seem to let COVID and war in Ukraine ruin growth path

WASHINGTON (Reuters) – Fears that the war in Ukraine tipping the US economy toward 1970s-style stagflation has given way to signs that Americans they plan to continue travelingreturn to restaurants and continue your return to “normal”.

Significant gaps remain in the post-pandemic economy. Office buildings are still underutilized in what may be one of the most persistent changes as workers and employers realized many jobs could be done from home; Businesses are still struggling to find supplies and hire workers at a time of record job openings.

But after a winter in which the war in the Ukraine, a new coronavirus outbreak and already high inflation paint a potentially bleak picture of even faster price rises and slowing growth, recent data from the government and elsewhere shows an expansion seemingly poised to continue.

US job growth continued apace in March and the unemployment rate fell to a two-year low of 3.6%, while wages are accelerating again, putting the Federal Reserve in a position to raise interest rates by 50 basis points in May.

The Labor Department’s employment report, closely watched by markets and monetary authorities, showed on Friday that nonfarm payrolls rose by 431,000 jobs last month.

gasoline consumption declined in March as prices nationwide topped $4 a gallon, but data from the Energy Information Administration still shows gasoline use remains around 95% of pre-pandemic levels, roughly where it has been. status since early 2022.

Air travel is approaching 90% of pre-pandemic levels. Data from restaurant reservation site OpenTable shows in-person dining at 95% of pre-pandemic levels on 15 of the past 18 days through March 30.

Inflation, which triples the Federal Reserve’s 2% target, infers that consumers are getting less for their money. February spending data showed consumption actually declined on an inflation-adjusted basis, with energy depleting a larger share of household budgets.

That drop, however, came after a spending surge in January, and this week analysts and Fed policymakers agreed that, so far, neither global events nor the ongoing pandemic have made a dent in the American economy.

“So far, high gasoline prices have not led to demand destruction,” analysts at RBC Capital Markets wrote this week. Between rising wages and savings still abundant in many households due to pandemic relief payments, “the average American has never been more able to absorb $4’s worth of gas.”

The outbreak of war in Eastern Europe threatened to further fuel inflation, which is currently at its highest level in four decades.

The prospect of a more aggressive Fed response to rising prices amplified talk of a “hard landing”: a recession triggered by rising interest rates, tightening credit, and a subsequent decline in consumer spending. businesses and households.

A closely watched stretch of the bond market this week showed continued concern about that outcome as 10-year Treasury yields briefly fell below 2-year Treasury yields, a sign of declining confidence in future economic growth.

Still, what economists and Fed officials see as the most telling signs of the bond market remain healthy.

“It is premature to start the countdown to the recession,” wrote Jefferies analysts Aneta Markowska and Thomas Simons. “This doesn’t look like a late-cycle economy… It’s a mid-cycle economy and the business cycle has room to run.”


Far from slowing down the economy, the Fed’s target policy rate remains well below the level that would discourage spending or investment. The central bank increased its fed funds rate by a quarter of a percentage point on March 16, raising it from the near-zero level set in March 2020 to offset the economic impact of the pandemic.

Interest rates are expected to rise steadily from now on, with Fed officials projecting hikes of at least a quarter percentage point at each of the remaining six policy meetings this year, with the potential for hikes yet to come. higher that could, by the end of the year, wipe out any remaining support from the governing body for economic growth.

Fed policymakers said this week they will watch carefully how such anticipated rate hikes impact inflation and economic growth, and will be prepared to raise borrowing costs faster if prices don’t respond or to halt them if appropriate.

But they stressed that the economy looks resilient right now, with companies perhaps struggling to find workers and supplies, but also meeting record demand, making strong profits and rising wages.

By some measures, the return to normalcy is here. Oxford Economics recently “withdrew” its weekly economic recovery tracker because the data it indexed, which measures employment, financial conditions, mobility and other topics, “essentially returned to pre-pandemic levels,” the Oxford analyst wrote. Oren Klachkin.

There are also signs that larger changes, expected by economists as part of a “normalized” economy, are starting to take shape.

In an indicator of the services sector’s rebound, data from the Las Vegas Convention and Visitors Authority showed a still-significant 18% gap from February in overall visits to the popular event and convention city.

However, demand has been strong enough to increase average daily room rates by 15%, and overall revenue per available room is less than 10% below 2019.

There are even some tentative signs that inflation could be moving in the right direction.

February data showed that year-over-year prices continued to rise, but a key measure of monthly inflation fell a tenth of a percentage point.

One month doesn’t set a trend, but in a news conference after the March 15-16 monetary policy meeting ended, Fed Chairman Jerome Powell said that kind of month-over-month decline is “really what we’re looking for.”

Reporting by Howard Schneider. Edited in Spanish by Marion Giraldo.

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