The first eight months of 2022 have not been kind to America’s economy.

Inflation has proven more stubborn than first thought as new subvariants of COVID-19, although less virulent due to higher immunity rates, have disrupted operations for key U.S. trading partners. Also, Russia’s invasion of Ukraine has halted the normalization of global freight costs and catapulted commodity prices.

The Federal Reserve (Fed), like most central banks worldwide, has begun reversing its accommodative policies as sharply as it loosened them at the pandemic’s onset. The Fed’s grand plan a year ago was to gradually raise rates a few months into economic overheating. It hoped monetary tightening would sap unnecessary grease from the pistons before it became an inflationary fire hazard. But as this inflection point arrived and the Fed raised interest rates in March for the first time since 2018, the Ukrainian war erupted—clamping down on global growth while worsening inflationary price pressures.

Rising interest rates and persisting inflation, along with the accompanying bear market, have dampened consumer confidence. But the situation is far from dire, and economic bright spots abound:

  • Demand for labor vigorously marches forward in all but a handful of industries. The number of job listings remains extraordinarily high, and the creation of private payroll employment continues at a healthy clip.
  • Fewer and fewer people report that concerns related to COVID-19 are keeping them from rejoining the workforce. Labor force participation rates across nearly all demographic cohorts continue to advance—if sluggishly—each month.
  • Early retirements opened opportunities for younger workers to advance, become more productive and earn invaluable experience. Job seekers today have rarely faced more favorable prospects.
  • Gas prices have slid for three months, easing trepidations at the pump. Lower fuel prices will trickle into lower freight and transportation costs for wholesalers and retailers, eventually lowering many prices.
  • Other commodities also have seen prices boomerang to pre-invasion levels, and many shortages have been resolved after manufacturers reengineered their supply chains and found alternate suppliers.
  • Interest-rates hikes translate to higher APRs (annual percentage rates) on many banking deposit products. Savers who rued near-zero returns on their hard-earned savings now earn dollars rather than pennies on their safest, most liquid deposits.

Despite all the positives, there’s no way around it: Many parts of the economy have slumped since last year and face a bumpy ride ahead. But if the path forward is a dark and curvy tunnel, the domestic economy is entering it with enough fuel and a high-beam headlight to light the way.

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