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March 2022 Economic Dashboard

Markets stumbled out of the gate this year as fears of a Russian invasion of Ukraine became a tragic reality. Despite the geopolitical turmoil, the Dow and S&P 500 ended the quarter higher than before the war began. The consequences of the conflict, including international sanctions, will significantly impact the global economy. Russia is a major exporter of oil, natural gas, steel, aluminum, wheat, platinum, and fertilizer. For the U.S., Russia is a minor trading partner and investment destination. Nevertheless, global commodity prices surged and are likely to remain elevated, adding to existing inflationary pressures.

The war is another headwind for globalization following the pandemic and trade conflicts. Supply chains are increasingly focused on balancing fragility with efficiency in an uncertain trade environment. As you can see in the chart below, U.S. trade (imports and exports) grew faster than the overall economy for decades. But now, trade is smaller in proportion to GDP than ten years ago. A boom in U.S. oil and gas production played a role in driving down imports, with the U.S. recently becoming the second-largest natural gas exporter. Furthermore, comparatively low energy costs, geopolitical challenges, elevated commodity prices, and upcoming infrastructure spending provide a positive economic backdrop for U.S. investment (defense, new factories, natural resources, equipment, software, R&D, etc.). Productivity gains will be crucial for economic growth in a tight labor market. More domestic investment could drive higher productivity, which may ease inflation pressures.

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