The 12 most important charts to watch in 2022

·Contributor
·5-min read

The gears powering the markets and the economy

Lots of data made huge swings in 2021 as large swaths of the economy reopened, quickly sending the stock market and GDP to new record highs.

As we look forward to the new year, there are two big-picture questions: Which positive trends will persist? And what are the opportunities for further growth?

With that in mind, here are the charts to watch in 2022:

1: Jobs: There were 148.6 million workers employed through November, according to the BLS’s payrolls survey. That’s up considerably from the 130.1 million low of April 2020 but still below the pre-pandemic high of 152.5 million workers in February 2020. Will the upward trajectory in employment persist and achieve new record highs?

Will the jobs recovery persist? (Source: FRED)
Will the jobs recovery persist? (Source: FRED)

2: Job openings: According to the BLS’s Job Openings and Labor Turnover Survey, there were a whopping 11.03 million job openings in the U.S. as of October. This means employers have the capacity to send employment in the U.S. well above record levels. Importantly, this is an encouraging sign for future growth as 1) employers wouldn’t list a job if they didn’t have the need and 2) the aggregate capacity to spend will go up as more people are working, which means increased levels of economic activity.

Will job openings get filled? (Source: FRED)
Will job openings get filled? (Source: FRED)

3: Labor force participation: Through November, there were 162.1 million people in the civilian labor force. These are the folks who are either employed or actively looking for work. This is down from the pre-pandemic high of 164.4 million in February 2020. There are a wide variety of reasons why people haven’t returned to the labor force. But the core issue continues to be the presence of the coronavirus, which keeps workers on the sidelines due to safety concerns and childcare issues among other things. The future strength of the economic recovery will depend on growth in the labor force.

Will those who aren’t looking for work change their minds? (Source: FRED)
Will those who aren’t looking for work change their minds? (Source: FRED)

4: Quits: A record percentage of people employed are quitting their jobs each month. This reflects a combination of things including discontent with working conditions and pay. For employers, quits can be disruptive as it reduces their capacity to do business. But for many workers, quitting usually comes with taking another job that offers more pay.

Will labor market churn cool down? (Source: FRED)
Will labor market churn cool down? (Source: FRED)

5: Compensation: Wages, benefits, perks, and everything else a worker could want or need is on the rise. This is great news for workers, but it also means employer costs are on the rise. All things being equal, this is inflationary. In fact, Fed Chair Jerome Powell recently characterized the latest employment cost index report as “very high.”

Will worker compensation continue to surge? (Source: FRED)
Will worker compensation continue to surge? (Source: FRED)

6: Supplier delivery times: Global supply chains continue to be jammed, which means it’s taking an unusually long time for suppliers to deliver goods to their customers. All of the major national surveys (e.g. ISM, IHS Markit) and regional surveys (e.g. Empire State Manufacturing, Philly Fed, Dallas Fed) confirm as much. Will supply chains finally loosen up in a definitive way?

Will supply chains loosen? (Source: FRED)
Will supply chains loosen? (Source: FRED)

7: Inventories: Inventory levels spiked briefly during the onset of the pandemic when spending collapsed. Since then, the recovery in demand collided with gummed up supply chains, leaving business inventory levels depressed. This has hindered sales and contributed to price inflation. Businesses everywhere have explicitly laid out plans to replenish their stockrooms, a move that has at least one economist calling it “the greatest story of the 2022 outlook yet untold.”

What will inventory restocking mean for growth and prices. (Source: FRED)
What will inventory restocking mean for growth and prices. (Source: FRED)

8: Inflation: Most major aggregated measures of prices confirm that inflation is running hot. The Federal Reserve’s preferred inflation metric — the core PCE price index — was up 4.7% year-over-year in November, which is well above the Fed’s long term average target of 2%. This is the result of a combination of things including rising wages, strong demand, and limited goods and services due to supply chain constraints. Of course, fiscal and monetary stimulus have helped fuel the economic rebound. But now inflationary rising prices are putting pressure on policy makers to tighten their purse strings.

Will inflation cool? (Source: FRED)
Will inflation cool? (Source: FRED)

9: Home prices: The U.S. housing market has captured many of the trends discussed above. The pandemic has had many workers seeking more space outside of dense urban areas. Cheap financing and higher wages certainly helped fuel demand. However, labor shortages and supply chain constraints have held back housing supply. And so the prices of homes available for sale have exploded. Surging cost inflation hasn’t helped.

Will home prices cool? (Source: FRED)
Will home prices cool? (Source: FRED)

10: Business investment: If there’s a single metric that captures all of the good things we have to look forward to, it’s orders and intentions to order capital goods. The fact that all these measures are on the rise means businesses are betting on growth. As businesses expand, they’ll have jobs to fill, which is great for the economy. Also, with expanded capacity, you can expect some reversal in the shortages we keep hearing about, which should also help inflation cool.

What will economic growth look like when all the capex orders are filled? (Source: FRED)
What will economic growth look like when all the capex orders are filled? (Source: FRED)

11: Profit margins: Despite cost inflation, corporations have been able to maintain fat profit margins by passing on those costs to customers through price hikes. However, customers will only take price hikes for so long. Perhaps all of the expected hiring and capex spending will help ease cost inflation.

Will corporations be able to maintain high levels of profitability? (Source: FactSet)
Will corporations be able to maintain high levels of profitability? (Source: FactSet)

12: Stock market valuations: One of the main reasons why Wall Street strategists tend to be conservative when forecasting stock prices is elevated valuations. Keep in mind: As long as earnings growth is outpacing stock prices, stocks could rise as valuations come down.

What happens with valuations and stock prices? (Source: FactSet)
What happens with valuations and stock prices? (Source: FactSet)

Bottom line: Businesses are investing for growth and they’ve got a lot of job openings to support those operations. This is bullish for the economy and the markets, and it could even provide some relief to inflation. However, much of it depends on getting people off of the economic sidelines and into the labor force.

Sam Ro is the author of TKer.co. Follow him on Twitter at @SamRo and read his commentary on the markets at TKer.co.

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