As has been the case throughout the course of 2022, general economic instability has been the defining force in the stock market, the global energy market, and most other markets throughout the world. With inflation continuing to push upward and the current situation in Ukraine affecting Ukraine, Russia, and most of their allies (as well as adversaries), it is unclear when the global economy will begin to stabilize once again.
Nevertheless, there are at least a few bright spots in the global economy, such as the fact that American homes have been able to maintain their values. But even keeping this in mind, there is no denying that the current economic situation is complex and rapidly changing.
Inflation Still Relatively High
Last week, a new report came out that revealed the annualized inflation rate has now topped 7.5 percent—this is the highest the annualized inflation rate has been since 1982. An inflation rate of 7.5 percent, as measured by the Consumer Price Index (CPI), means that a consumer good that cost $100 one year ago would currently cost about $107.50. Normally, the inflation rate hovers between 2 and 3 percent, suggesting that the change in the value of the dollar over the past year is something that has been far from normal.
Thus far, there have been a few clear drivers of this uptick in inflation, including global supply chain issues (it costs a lot more to send something around the world), the consequences of increased government spending amid the COVID-19 fallout (causing the money supply to significantly increase), increased cost of energy, and other global problems. The probability of increased inflation has been something that many economists have been forecasting since at least 2020, regardless of the world’s changing geopolitical landscape, but now it is clear that these outcomes are fully coming to fruition.
DOW Reaches Six Month Low
As of closing hours on Monday, the Dow Jones Industrial Average—often considered one of the most useful metrics for gauging the state of the economy as a whole—neared the lowest it has been in the last six months, closing at just 32,945 points (last week, March 8, was the actual all-time low). This represents a 5.37 percent from where the Average sat just six months ago, though the index is near exactly where it was one year ago when it ended up closing at 32,953 points.
Usually, the dropping of the Dow Jones Industrial Average is an indicator that the economy is not moving in a very positive direction. Furthermore, when you adjust for inflation, the index appears to be doing even worse than what its point value might suggest—due to the high inflation rate, the index is actually down about 2,000 points compared to where it stood at this same point last year.
Of course, there are many factors that affect the value of the DOW, which is why it is a good idea to take a broad overview of the economy before deciding to buy or sell. Still, even keeping this in mind, it is clear that the American economy is not necessarily thriving.
However, there are also a few ongoing trends indicating that the market might be turning in a somewhat positive direction. For example, though the inflation rate remains incredibly high, the unemployment rate is currently very low (an estimated 3.8 percent, among the lowest it has been in the last 20 years), indicating there is still at least a little bit of potential for long-term growth.
While the unemployment rate isn’t the only variable that investors should be taking a look at, it is certainly among the most useful. And if this rate continues to remain low—as most employment indicators suggest that it might—it might be a good time to invest in the broader market, as a whole. The Federal Reserve typically focuses on two main indicators: inflation and employment. And while inflation is high, unemployment is low, suggesting there is actually quite a bit of probability for long-term growth.
The Situation in Ukraine is Still Problematic
Perhaps the most notable economic event of the past few weeks has been the Russian invasion of Ukraine, its neighbor, which appears to still be very far from being fully resolved. Russia, in an apparent effort to claim some of Ukraine’s sovereign territory as its own, has been escalating its war efforts, which has thus far resulted in the deaths of hundreds of Ukrainians as well as the general destruction of many of Ukraine’s most important cities (including the capital, Kyiv).
In addition to the deaths that have proliferated in Ukraine—already a tragedy of their own—the events of recent weeks have created further global economic chaos. Gas prices, which were already near an all-time for a variety of reasons (including actions by OPEC, limited production in key regions, and others) have reached a current average of $4.33, up significantly from an average below $3.00 just one year ago. The production of other significant products, including wheat and rare earth minerals, has also experienced widespread issues.
It is not exactly easy to look at the current state of global economic affairs and walk away with very much optimism—the combination of global political instability, war, consequences of COVID-related stimulus, and other dramatic actions are all currently being reflected in both the price and available quantity of current goods. Nevertheless, the global economy is still at least a little bit more stable than it has been in years past, such as the financial crisis of 2008.
Andrew is a freelance writer that primarily focuses on real estate and finance topics. He graduated from the University of Colorado with degrees in Finance and Political Science and has since worked in the real estate, life insurance, and digital marketing industries. When he is not writing, Andrew enjoys skiing, playing piano, painting, and spending time with his wife (Maggie) and cat (Crow).