ARTICLE
Who would have thought that as we embarked on a new year that the first quarter of 2022 would be a mixture of highs and lows? And now the unimaginable invasion of Ukraine by Putin and his Russian army. The pandemic is abating, the most egregious all-consuming socioeconomic issue over the last 2 years. We are feeling a little relief as the mask mandate has been lifted, the latest virus surge is heading in a downward direction and people are reconvening to meet and get out and about. This should help lift Santa Cruz County spirits in 2022. But now emerging in its place is a war we have to worry about, which we desperately hope does not escalate beyond Ukrainian borders. The horror of war and the exodus of nearly 2 million Ukrainians (at this stage of the raging war) turned these proud people to immediate refugees seeking safety along the border of their homeland. There is no short-term solution except an immediate cease-fire plan to save the fleeing Ukrainian people. I am not writing to question the Biden Administration’s strategies in unity with the world and especially our European Union allies. It is a complicated process that will take political willpower, a variety of sanctions placed on Putin and his supporters and a carefully defined plan that does not expand the conflict beyond Ukraine. Early polls (by ABC, Yahoo, Gallup) predictably have most Americans supporting sanctions on Russia, but do not believe the U.S. should be more involved. Nevertheless, the war will have further impacts on consumers, on both inflation and product shortages. The primary problems weighing heavily on us are not going to disappear quickly. Coming soon will be higher interest rates which will directly impact auto loans, consumer loans, and probably higher home mortgages. Though Inflation is the target as the Federal Reserve prepares to push interest rates higher, it will remain for much of 2022 before any tightening policies have an impact. The war in Ukraine is the real reason for Americans to feel sour about the economy; it is unlikely to deter the Fed from raising rates this month, unless there is an unexpected escalation of the conflict to include other countries or greater involvement from NATO including the U.S. Product “shortages” or empty shelves were going to be slow to resolve in the absence of the war. Now they will be further impacted. Clearly, we don’t need another geopolitical conflict interrupting global movement of goods at a time when we still have not recovered from the pandemic interruptions. But that’s where we are now. According to recent reports, U.S. inflation will rise to 8 percent this month. Oil prices were already soaring before the invasion began, but have moved 20 percent higher since the Russian army aggressively pushed into Ukraine. Oil price inflation is insidious, affecting the price of so many byproducts of petroleum. Currently, we are seeing over $6.00/gallon prices on the central coast. While there is discussion by the Biden Administration to reduce our dependence on Russian oil, another solution needs to be in place. The prices of wheat and corn are also rising sharply because these global agricultural export markets from Russia-Ukraine are substantial. The two countries alone account for 70 percent of total wheat exports going to Egypt and Turkey, and 27 percent of all wheat exports to the rest of the world. The question that arises is consumer confidence. The Conference Board and the University of Michigan are showing no improvement. Moreover, the latter measure has now hit a 10-year low. The Fannie Mae National Housing Survey conducted in January has 83 percent of respondents indicating it’s a bad time to buy housing, and only 15 percent saying it’s a good time to buy. This “good time to buy measure” is now at an all-time record low. The Gallup economic confidence poll updated in mid-January showed little improvement from the 2021 results. Furthermore, an NBC News poll found that only 22 percent of respondents believe conditions are headed in the right direction. The Ipso-Forbes poll of U.S. Consumer confidence tracker conducted on February 24 has consumer expectations about the future more pessimistic today than at any other time since the pandemic lows of April 2020. A problem with these polls naturally involves the definition of the right direction. Political issues have become so divisive these days, there is little consensus on what is the right direction. And there are a lot of divisive issues in Santa Cruz County that further complicate our little slice of the world. Nevertheless, the overall response of Americans to the question is consistent with other questions and other polls about the country and the U.S. economy: There is a total convergence in attitudes and that convergence has unilaterally moved toward pessimism. A quick end to the war is needed to clearly reduce investor uncertainty responsible for pushing up commodity prices and escalating our already extraordinarily high rates of inflation. The longer the conflict continues, the more uncertainty there will be.
Who would have thought that as we embarked on a new year that the first quarter of 2022 would be a mixture of highs and lows? And now the unimaginable invasion of Ukraine by Putin and his Russian army. The pandemic is abating, the most egregious all-consuming socioeconomic issue over the last 2 years. We are feeling a little relief as the mask mandate has been lifted, the latest virus surge is heading in a downward direction and people are reconvening to meet and get out and about. This should help lift Santa Cruz County spirits in 2022. But now emerging in its place is a war we have to worry about, which we desperately hope does not escalate beyond Ukrainian borders.
The horror of war and the exodus of nearly 2 million Ukrainians (at this stage of the raging war) turned these proud people to immediate refugees seeking safety along the border of their homeland. There is no short-term solution except an immediate cease-fire plan to save the fleeing Ukrainian people. I am not writing to question the Biden Administration’s strategies in unity with the world and especially our European Union allies. It is a complicated process that will take political willpower, a variety of sanctions placed on Putin and his supporters and a carefully defined plan that does not expand the conflict beyond Ukraine.
Early polls (by ABC, Yahoo, Gallup) predictably have most Americans supporting sanctions on Russia, but do not believe the U.S. should be more involved. Nevertheless, the war will have further impacts on consumers, on both inflation and product shortages.
The primary problems weighing heavily on us are not going to disappear quickly. Coming soon will be higher interest rates which will directly impact auto loans, consumer loans, and probably higher home mortgages. Though Inflation is the target as the Federal Reserve prepares to push interest rates higher, it will remain for much of 2022 before any tightening policies have an impact. The war in Ukraine is the real reason for Americans to feel sour about the economy; it is unlikely to deter the Fed from raising rates this month, unless there is an unexpected escalation of the conflict to include other countries or greater involvement from NATO including the U.S.
Product “shortages” or empty shelves were going to be slow to resolve in the absence of the war. Now they will be further impacted. Clearly, we don’t need another geopolitical conflict interrupting global movement of goods at a time when we still have not recovered from the pandemic interruptions. But that’s where we are now.
According to recent reports, U.S. inflation will rise to 8 percent this month. Oil prices were already soaring before the invasion began, but have moved 20 percent higher since the Russian army aggressively pushed into Ukraine. Oil price inflation is insidious, affecting the price of so many byproducts of petroleum. Currently, we are seeing over $6.00/gallon prices on the central coast. While there is discussion by the Biden Administration to reduce our dependence on Russian oil, another solution needs to be in place.
The prices of wheat and corn are also rising sharply because these global agricultural export markets from Russia-Ukraine are substantial. The two countries alone account for 70 percent of total wheat exports going to Egypt and Turkey, and 27 percent of all wheat exports to the rest of the world.
The question that arises is consumer confidence. The Conference Board and the University of Michigan are showing no improvement. Moreover, the latter measure has now hit a 10-year low. The Fannie Mae National Housing Survey conducted in January has 83 percent of respondents indicating it’s a bad time to buy housing, and only 15 percent saying it’s a good time to buy. This “good time to buy measure” is now at an all-time record low.
The Gallup economic confidence poll updated in mid-January showed little improvement from the 2021 results. Furthermore, an NBC News poll found that only 22 percent of respondents believe conditions are headed in the right direction.
The Ipso-Forbes poll of U.S. Consumer confidence tracker conducted on February 24 has consumer expectations about the future more pessimistic today than at any other time since the pandemic lows of April 2020.
A problem with these polls naturally involves the definition of the right direction. Political issues have become so divisive these days, there is little consensus on what is the right direction. And there are a lot of divisive issues in Santa Cruz County that further complicate our little slice of the world.
Nevertheless, the overall response of Americans to the question is consistent with other questions and other polls about the country and the U.S. economy: There is a total convergence in attitudes and that convergence has unilaterally moved toward pessimism.
A quick end to the war is needed to clearly reduce investor uncertainty responsible for pushing up commodity prices and escalating our already extraordinarily high rates of inflation. The longer the conflict continues, the more uncertainty there will be.