U.S. Economic Outlook: Ukraine Conflict Adds to Inflation …

1 Economic OUTLOOK. Ukraine Conflict Adds to Inflation Woes MARCH 2022. 2022 Morning Consult, All Rights Reserved. ABOUT THIS REPORT. Morning Consult's monthly Economic Outlook report provides an integrated assessment of the strength of consumers, workers and households. Businesses and investors rely on this report to understand emerging trends in consumer demand, employment and personal finances. The report draws on Morning Consult Economic Intelligence, a high-frequency, global Economic dataset, reflecting more than 11,000 daily Economic surveys across the 15 largest global economies. 2. IN THIS REPORT. 4 Economic Outlook: March 2022. 13 Consumer Confidence 20 Employment 30 Spending 34 Supply Chains, Price Expectations and Inflation 44 Personal Finances, Consumer Credit and Housing 48 Methodology 3. SECTION 1. Economic OUTLOOK: MARCH 2022. SUMMARY. Introduction Inflation , market volatility and supply shortages drove the economy in February. Russia's invasion of Ukraine highlights the relevance of these themes in March, although the magnitude of the near-term Economic impact of the invasion will depend on the severity and duration of the war and the scope of the global response.

2 Confidence Employment Personal finances Consumer confidence remained essentially February's employment data indicates there Americans experienced modest improvement unchanged in February at the aggregate is still room for jobs growth as more low- in their personal finances in February as jobs level as consumers shifted their concerns income adults started looking for work. Pay growth at the low end of the income from rising COVID-19 cases toward Inflation . losses also fell on average over the month, spectrum reduced the share of financially High-income adults are more likely to be which should provide workers on the vulnerable adults. However, a quarter of very concerned about Inflation , and the ICS sidelines with an even stronger reason to adults would be unable to pay their basic among high-income adults registered a start looking for work. Unfortunately, if expenses for a full month if they were to lose sharp decline in February. Russia's invasion consumers continue changing their spending their incomes.

3 While tax returns are likely to of Ukraine poses a downside risk to habits in response to Inflation , workers and drive further improvements in Americans'. consumer confidence, primarily via elevated job seekers will struggle to determine where finances over the next few months, advanced energy prices and market volatility. they can find sustainable employment. child tax credit payments will limit the size of this year's payments. Economic Outlook | Ukraine Conflict Adds to Inflation Woes 5. Economic INDICATORS DASHBOARD. CURRENT PERIOD PRIOR PERIOD CHANGE impact . Consumer Confidence ICS .03 pts POSITIVE. Employment Lost pay/income POSITIVE. Unemployment rate NEGATIVE. Labor force participation rate POSITIVE. Employment-to-population ratio NEGATIVE. Personal Finances Expenses were more than income* NEGATIVE. Financial vulnerability (unable to pay basic expenses for a full POSITIVE. month using just savings). *Current period for this series reflects survey data collected the first week of the month asking about personal finances during the prior month.

4 All other series compare the most recent data from the current month to the prior month Economic Outlook | Ukraine Conflict Adds to Inflation Woes 6. ASSESSING impact OF RUSSIAN INVASION OF Ukraine ON ECONOMY. Summary A year ago, Russia's invasion of Ukraine would likely have had a minimal impact on the economy, but the United States is now particularly vulnerable to the likely side effects of the crisis. By mid-February, the most recent surge in COVID-19 cases had given way to high energy costs and elevated Inflation , persistent supply chain disruptions, volatile markets and monetary policy uncertainty. Russia's invasion of Ukraine worsens the situation on all these fronts, hitting the American economy at its weakest points. While the timing of the invasion of Ukraine could hardly be worse for the economy, in absolute terms Americans remain relatively insulated The channels of influence of Russian invasion of from Russia and Ukraine . Certain businesses and industries face significant exposure to these countries, but the economy in Ukraine On economy: aggregate does not meaningfully trade with either of these countries.

5 Thus, the near-term macroeconomic impact of the Russian invasion of Energy prices Supply chain Ukraine will be marginal relative to domestic factors such as continued and Inflation disruptions jobs growth and persistently elevated Inflation . The ultimate impact of the Russian invasion of Ukraine on the economy critically depends on the military and political outcomes, the Financial Spillover effects severity of sanctions imposed against Russia, the resolve of the global markets from Europe community to enforce sanctions and the scope of the Economic spillover effects outside of Russia and Ukraine particularly across Europe. Given the rapid rate of developments on these fronts, this analysis is subject to change in the coming weeks. Economic Outlook | Ukraine Conflict Adds to Inflation Woes 7. ASSESSING impact OF RUSSIAN INVASION OF Ukraine ON ECONOMY. Energy Prices and Inflation Crude oil spot prices, $/barrel Global energy prices are on the rise and any disruption to supplies from the world's third largest energy exporter Russia would Brent crude oil WTI intermediate inevitably drive prices higher.

6 110. Russia's invasion of Ukraine initially pushed crude prices above 100. $100 per barrel for the first time since 2014 as investors anticipated major disruptions. While the United States and Europe have thus far 90. opted against directly targeting Russian energy exports with sanctions risks remain, amid continuing uncertainty related to 80. Conflict and policy response. 70. Rising global energy prices will place upward pressure on prices in the United States especially gasoline prices. And these higher prices 60. are not lost on consumers, who are steadily anticipating higher and higher prices. 50. The impact on the economy and households' bottom lines was clearly a consideration as the Biden administration weighed policy 40. 1. 1. 1. 1. 1. 1. 2. 21. 1. 1. 1. 1. 1. responses to Russia's invasion. Morning Consult research shows '2. '2. '2. '2. '2. '2. '2. '2. '2. l '2. '2. '2. r'. g p ay n ar n c b ct v Ju n Ap Ju No Fe De Ja Au Se Ja O. that despite high Inflation , a plurality of voters support M.

7 M. sanctions, even if it means higher costs. Source: Morning Consult; EIA; CME/Haver Economic Outlook | Ukraine Conflict Adds to Inflation Woes 8. ASSESSING impact OF RUSSIAN INVASION OF Ukraine ON ECONOMY. Energy Prices and Inflation (CONTINUED) Share of adults who expect the price of energy and utility bills to increase over the next 12 months, by country While energy price expectations are more elevated in Europe . especially in economies that are heavily reliant on Russia gas and oil consumers have steadily lifted their expectations for France Germany Italy Spain energy and utility bill prices over the past year, with percent of adults expecting prices to increase over the next 12 months as 90%. of January. Higher prices at the pump are causing consumers to pull back on driving, with 57 percent of adults who drove less in February 70%. citing high gas prices as the reason. (Slide 42). consumers are also already allocating more of their total share of wallet to nondiscretionary categories like housing and groceries 50%.

8 As rising prices force them to pull back from other spending categories. Additional increases in gas prices will exacerbate these trends. (Slide 32). 30%. 1. 1. 1. 1. 1. 1. 2. As consumers' bills increase and their confidence tumbles, 21. 1. 1. 1. 1. '2. '2. '2. '2. '2. '2. '2. '2. '2. l '2. '2. r'. p ar ct ay n c b g v Ju n Ap Ju No Fe De Au Se spending will likely suffer, with a slowdown in personal Ja O. M. M. consumption potentially offsetting the positive impacts of investment and jobs growth. Source: Morning Consult Economic Intelligence: Survey conducted monthly among a representative sample of 1,000 adults in each country, with an unweighted margin of error of +/-3 percentage points. Economic Outlook | Ukraine Conflict Adds to Inflation Woes 9. ASSESSING impact OF RUSSIAN INVASION OF Ukraine ON ECONOMY. Supply Chain Disruptions CBOT Wheat futures, cents/bushel consumers are already feeling the impact of supply chain disruptions Soft red winter wheat Hard red wheat and elevated prices, particularly around food and groceries: 51 percent of 1,000.

9 Adults faced limited grocery supply in February, up from 47 percent in January 2022 (slide 35). As supply chain disruptions and Inflation have 900. worsened over the year, so have concerns around being able to pay 800. monthly grocery bills (slide 48). 700. Share of adults not confident in their ability to pay their monthly grocery bill 600. 500. Au 1. Ap 1. Ja 1. M 1. Se 1. De 1. M 1. Fe 1. No 1. O 1. 2. 1. 1. '2. '2. '2. '2. '2. 2. '2. '2. l '2. '2. '2. '2. '2. r'. g p n ar c ct ay n b v Ju n Ja Ju Source: Morning Consult; CBOT; CME/Haver While the United States does not directly rely on Russia or Ukraine for its food production, Ukraine is a significant producer of wheat, most of which is purchased by Europe. Russia's invasion will limit Ukraine 's wheat production, driving down the supply and increasing the price. Wheat markets are global Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '21 '21 '21 '21 '21 '21 '21 '21 '21 '21 '21 '21 '22 markets, and these developments in Europe are likely to have some adverse affect on consumers.

10 Source: Morning Consult Economic Intelligence Economic Outlook | Ukraine Conflict Adds to Inflation Woes 10. ASSESSING impact OF RUSSIAN INVASION OF Ukraine ON ECONOMY. Financial Markets and Monetary Policy 3-month Treasury Bill, percent yield Prior to Russia's invasion of Ukraine , financial markets were trying to decide if the Federal Reserve would raise interest rates by 25 or 50 basis points (bps) in March. The invasion may make it harder for the Fed to justify a 50-bps increase, as policymakers weigh the need to curb Inflation against emergent risks to Economic growth. While some FOMC members have said a half percentage-point hike could still be justified if Economic data continues to come in hot, the Ukraine Conflict has added uncertainty to this outlook. Investors began to question the pace of rate hikes when threats of an invasion ratcheted up, sending 3-month treasury yields off near-term highs. However, markets are still more than priced for a 25-bps hike in March.