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Monthly Economic and Investment Outlook

November 2021 Economic and Investment Outlook

United States

  • Q3 real GDP increased at an annual rate of 2.0% (comprised of 7.8% nominal GDP growth and a 5.7% GDP deflator) compared to a 6.7% increase in Q2, according to the BEA. Private inventory investment, personal consumption expenditures (PCE), and state and local government spending contributed to the growth while residential fixed investment, federal government spending, and exports detracted from it.
  • The Employment Cost Index (ECI), which includes both wages and benefits, accelerated to 3.7%, year over year in Q3, with private wages and salaries up 4.6% from year ago levels. This was the fastest pace in 14 years.
  • Productivity sank at a 5% annual rate in Q3, the first decline in 3 quarters. Hours worked increased 7%, yet output was up only 1.7%, resulting in an 8.3% increase in unit labor costs. Productivity needs to significantly improve from these levels. If not, then upward wage pressures could cause a wage-price spiral, similar to what happened in the 1970s.
  • The October U.S. ISM Manufacturing PMI index dropped 0.3 ppts to 60.8%. Survey respondents continue to report frustration with supply chain issues, and a general inability to meet strong demand. New orders ticked down, production remained relatively flat, and inventories are slowly rebuilding – slight positives. However, broad supply chain problems persist as supplier deliveries slowed and prices paid rose.
  • The unemployment rate dropped from 4.8% to 4.6% in October as 531,000 nonfarm payroll jobs were created. The average monthly job gains, with revisions, over the past three months is a healthy 442,000. Average hourly earnings have increased 4.9% over the past 12 months.
  • Real consumer spending rose 1.6% in Q3, down from 12% in Q2. Real consumer spending on new autos fell 68.1% in Q3, on a seasonally adjusted annual rate. Consumer savings remain substantial.

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  • GDP in the 19-nation eurozone grew at a seasonally adjusted annual rate of 9.1% in Q3, roughly in line with the previous quarter, and significantly faster than the U.S. Q3 GDP growth rate of 2%, and China, which was basically flat over the same time period. The eurozone has not yet returned to pre-pandemic output levels, unlike the U.S. and China. The global economic recovery and expansion remains uneven.
  • In China, the official manufacturing PMI slipped from 49.6% to 49.2%, a seventh monthly decline, and a second month of contraction. China’s official services PMI cooled more than expected to 52.4% from 53.2%, near the low end of the pandemic range.
  • China’s economic activity has been negatively impacted by its “zero tolerance” virus policy, power outages, and real estate debt uncertainty. These headwinds do not appear to be temporary as Beijing is not backing off its Xi-ist regulatory push, nor its real estate deleveraging campaign.
  • Surging demand from the economic recovery, limited supply of fossil fuels, and low levels of variable renewable power (wind and hydro) are leading to significantly higher prices for power and energy.
  • According to Reuters, China has more than 1000 coal plants in operation with another 240 planned or under construction. More than 90% of the 195 coal plants being built around the world are in Asia, according to data from GEM.
  • Manufacturing PMIs in many smaller Asian countries ticked up in October, with Thailand, Malaysia, and Vietnam moving into expansion territory after several months of contraction.

Fixed Income

  • The Fed announced after the November FOMC meeting that it will begin tapering its $120 billion monthly security purchases by $15 billion per month ($10 billion in U.S. Treasuries and $5 billion in Government Agencies) in November and December. The tapering will most likely end in mid-2022.
  • The short-term rate markets effectively have priced in two 25 basis point increases in the Fed’s federal fund rate target by the end of 2022, and potentially four additional rate hikes in 2023. However, should inflation subside in 2022, the Fed may hold off on rate hikes late next year.
  • With the notable exception of the European Central Bank, all major central banks are now aiming to exit from extreme monetary stimulus. Negative yielding debt continues to fall as it now stands at $12 trillion versus a high of $18.3 trillion in late 2020.

Tactical Fixed Income Allocation

  • Duration slightly below the appropriate benchmark in an interest rate environment which appears range bound, but with the potential to edge higher should inflation turn out to be stickier and less transitory than originally forecast.
  • Slight overweight to investment grade corporates - capture incremental income.


  • Equity markets were up in October and trade near their all-time highs, despite the many challenges and headwinds facing the market – a slowing economy, the bipartisan infrastructure package, the $1.75 trillion human infrastructure deal, a potential government shutdown related to raising the debt ceiling, and the reappointment of Jay Powell as the Federal Reserve Chairman.
  • Corporate profits may come under pressure: 1) Revenue growth risks slowing, 2) Wages (2/3 of corporate costs) are accelerating, 3) Many non-wage input costs are rising (inflation), and 4) Supply chain disruptions persist.
  • Yardeni Research remains positive on the equity markets with year end price targets for the S&P 500 of 4,800, 5,200, and 5,500 in 2021, 2022, and 2023, respectively. The S&P 500 is currently around 4,600.

Tactical Equity Allocation

  • Neutral weight in U.S. Large Cap stocks with an equal balance between value and growth.
  • Remain slightly underweight International Developed and Emerging Markets, although valuations remain attractive relative to U.S. equities. International Developed is experiencing relatively slower growth while Emerging Markets may be pressured by slower growth in China and a relatively strong U.S. dollar.
  • Exposure to gold, which serves as a hedge against monetary or fiscal policy error, debt monetization, and higher inflation. Beneficiary of real negative interest rates.

Notices & Disclosures
Past performance is no guarantee of future results. Products and services offered through F.N.B. Investment Advisors, Inc. are not FDIC insured; and are not insured by any Federal Government Agency, are not deposits or obligations of or guaranteed by First National Bank of Pennsylvania or its affiliates and may go down in value. The material has been extracted from various sources that F.N.B. Investment Advisors, Inc. believes reliable, but we cannot guarantee the accuracy or integrity of the material. This material is for your private information, and we are not soliciting any action based upon it. Any projections, market outlooks or estimates contained herein are forward-looking statements and are based upon certain assumptions. Other events that were not considered may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly herein will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with their investment advisor. You can review your registered investment advisors or the investment advisory firm at the SEC's Investment Adviser Public Disclosure page -

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