“Q1 2022 - Singing in the Rain"

  • By: Joseph R. Tranchini, CFA
  • May 2022








Stop me if you have ever heard this one before…. “Get ready, because the bad times are coming”, or how about “We’re due for some bad news, I can feel it”, or my personal favorite “This time I really mean it, things are going down”. We may have experienced various shortages during the Pandemic, but one thing we are certainly not in short supply of is the ever-persistent Armageddonist. Waking up every day and claiming the sky is falling does not constitute an economic forecast, nor does it constitute actual sound financial advice, never has… never will. There has never existed a single day in all of human history where there has not been at least something to point to as potential cause for concern, and yet, seemingly against all the odds, the economy and markets have continued to push forward despite the presence of these shadowy apparitions that folks in the investment industry call ‘risks’. Nevertheless, it is important to understand not only where you’re at, but also where you’re going. So, with that being said, let’s take a brief trip down this quarter’s economic rabbit-hole and see not only where we stand, but which direction we are moving in.


I’m not sure if it would be possible to handcraft a more head-scratching set of economic data relative to what we got in Q1 2022. Aggregate economic growth actually contracted in the quarter, however by far the largest segment of the economy, Consumer Spending, actually saw positive growth accelerate to a new 3-quarter high. Even weirder still, the second largest part of the economy, Private Investment, also saw growth in the quarter. So, with the 2 largest segments of GDP experiencing growth, who was the culprit responsible for aggregate growth being negative? The short answer, the U.S. Dollar. The U.S. Trade Deficit reached a new all-time high in the quarter on the back of not only much higher Imports, but also from lower Exports as well. When the U.S. Dollar appreciates relative to other major currencies not only do foreign goods and services become cheaper for U.S. companies to buy, but American exports of goods and services become more expensive for foreign companies to buy. With the U.S. Dollar near 20yr highs relative to other major currencies, this doubled edged sword made both its marks on the U.S. economy in the recent quarter.

Cause for concern? Probably not.

I would not call growth in the 2 largest segments of the economy, occurring in tandem with significant employment gains, reason to sound the alarm bells. Rather, this quarter’s aggregate economic contraction was largely the result of trade-related crosscurrents that obfuscated the true underlying strength of the economy. In fact, regarding employment, many industries have even higher levels of employment now than prior to the start of the pandemic. In sum, not only are more people making money, but they are spending it too.

Our quarterly economic foray does not end there. What about Inflation?

Having to fight off stress-induced stomach ulcers every time you fill up your car’s gas tank is not an experience that many people want to persist. While Inflation has been historically high for some time now, I do believe it is important to understand that the forces causing Inflation over this time have changed in a big way. Initially, what we saw was a significant dislocation between the economic growth and the supply of labor. This detachment caused havoc at all points in supply chains across the economy as an asymmetric economic normalization left us with was supply-based inflationary pressures for many of the goods and services that we use on a daily basis. This labor dislocation has improved significantly since then, and there are signs that supply chains have healed substantially. For example, over the past 2 quarters business inventories have been sequentially increased, an effect that was noticeably absent in the early days of our current inflationary woes. But just as the labor supply issues have been turning around, a new inflationary force came into the fold, the Russia-Ukraine War. With the Russia-Ukraine conflict came 2 major inflationary effects, perceptions of oil & gas supply shocks, as well as global wheat and fertilizer shortages. Russia and Ukraine are the largest and fifth largest exporters of wheat, while Russia is the largest exporter of fertilizers. Just as inflationary pressures were subsiding elsewhere in the economy, Energy & Food prices soared in response to these two effects. This has produced an odd backdrop where Headline Inflation has accelerated, but where Core Inflation has actually moderated to tamer levels. With the expectation for eventual increases in domestic oil & gas production, as well as the adoption of alternative fertilizers, the Russia-Ukraine induced inflationary effects may prove to be short-lived. Important to note, that since inflation has been so high for some time, we are now getting into the territory of period-to-period changes experiencing progressively higher comparisons and therefore we could see a moderation in inflationary pressures simply due to the phenomena known as ‘base-effects’. Additionally, it bears mentioning that while costs for consumers have gone up over the past year, incomes have also risen as well. Personal savings remain elevated north of 2018 levels, and the average consumer’s balance sheet remains well fortified. So, while still exceedingly annoying, the worst of our inflationary troubles may be in the rearview mirror.


All in all, despite the extraordinary surplus of troubling narratives being persistently tossed around, the fundamental backdrop of the U.S. Economy remains strong and appears to be well poised to continue right along its trend growth path. Rainy days, even if they do actually come, do not stick around forever, and neither do opportunities in the investment markets. With that being said, I’ll leave you with one parting note to consider…. Who calls for rain more than the person selling umbrellas? Until next time…


[See Below for Disclosures & Annotations]


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.



  1. 1. FactSet. “Economics – Country/Region – United States”. April 28, 2022.
  2. Bureau of Economic Analysis. “Gross Domestic Product, 1st Quarter and Year 2021 (Advance Estimate)”. April 28, 2022.
  3. Bureau of Economic Analysis. “Labor Force Statistics from the Current Population Survey”. May 6, 2022.
  4. Bureau of Economic Analysis. “Personal Income”. April 28, 2022.
  5. FRED. “5-Year Breakeven Inflation Rate”. May 4, 2022.
  6. FRED. “10-Year Breakeven Inflation Rate”. May 4, 2022.