Tag: Jobs

September CPI Shows Slight Inflation Increase as Jobless Claims Hit 14-Month High

Posted on by cpatches
Key Points:
– CPI rose by 0.2% in September, bringing annual inflation to 2.4%, slightly above expectations.
– Weekly jobless claims surged to 258,000, the highest in 14 months, influenced by hurricanes and strikes.
– The Federal Reserve is expected to continue lowering interest rates, with an 87.1% chance of a 25-basis-point cut in November.

The Consumer Price Index (CPI) rose by 0.2% in September, slightly higher than expected, bringing the annual inflation rate to 2.4%. This increase was 0.1 percentage point above both August’s reading and market expectations. Over the past 12 months, CPI has increased by 2.4%, outpacing the forecasted 2.3%. Core prices, which exclude food and energy, rose by 0.3% for the month.

Despite this increase, inflation continues to trend down from its peak earlier this year, hitting its lowest level since February 2021. Key price shifts included a 1.9% drop in energy prices, a 0.4% increase in food prices, and a 0.2% rise in shelter costs. These changes, while modest, reflect some external pressures, including the ongoing conflict in the Middle East and the lingering effects of natural disasters.

In labor market news, weekly jobless claims surged to a 14-month high, reaching 258,000 for the week ending October 5, an increase of 33,000 from the previous week. The rise in claims is partly attributed to hurricane and strike activity. Florida and North Carolina, impacted by Hurricane Helene, saw a combined increase of 12,376 jobless claims. Michigan, affected by the Boeing strike, reported an additional 9,490 claims.

Despite the uptick in unemployment claims, nonfarm payrolls rose significantly in September. The Federal Reserve remains focused on reaching its inflation target of 2% and has begun lowering benchmark interest rates, including a half-point reduction in September. Further rate cuts are anticipated, with futures markets pricing in an 87.1% chance of a 25-basis-point cut in November, according to the CME’s FedWatch Tool.

While inflation was slightly higher than expected, external factors like hurricanes, strikes, and global tensions continue to influence economic dynamics. The Fed remains optimistic that inflation will continue its downward trend, though unforeseen events and upcoming political changes could impact future economic stability.

Jobs Report Exceeds Expectations, with 254,000 Jobs Added

Posted on by cpatches
Key Points:
– The U.S. economy added 254,000 jobs in September, beating forecasts and driving the unemployment rate down to 4.1%.
– Average hourly earnings rose by 0.4% for the month, marking a 4% increase year-over-year, both exceeding estimates.
– The strong jobs report could lead the Federal Reserve to adopt a more gradual pace in reducing interest rates, signaling economic resilience despite moderating hiring trends.

The U.S. economy added 254,000 jobs in September, significantly surpassing the 150,000 consensus forecast and marking a sharp increase from the revised 159,000 jobs added in August. The unemployment rate fell to 4.1%, down from 4.2% in the prior month, as labor market conditions strengthened. Average hourly earnings also outperformed expectations, rising 0.4% in September, which brought the annual increase in wages to 4%.

Strong Job Gains Across Key Sectors

Food services and drinking places saw the largest growth, adding 69,000 jobs in September, followed by healthcare, which added 45,000 positions. Government jobs also contributed to the overall increase, ticking up by 31,000. The labor force participation rate remained unchanged at 62.7%, reflecting stability in workforce engagement despite the notable job gains.

Implications for the Federal Reserve’s Rate Path

This robust jobs report could ease concerns about the strength of the U.S. labor market and likely solidify the Federal Reserve’s stance on slowing the pace of interest rate reductions. The consistent improvement in key labor metrics may allow the Fed to take a more gradual approach, avoiding sharp rate cuts while still maintaining flexibility based on future economic data.

Earlier this week, Federal Reserve Chair Jerome Powell remarked that while the labor market remained solid, it had clearly cooled compared to last year. With hiring rates moderating and new claims for unemployment holding steady, Powell’s comments may align with the Fed’s cautious stance, even as stronger-than-expected jobs data shows resilience.

Historical Context: Jobs Reports and Market Movements

Historically, U.S. jobs reports play a pivotal role in shaping market expectations and influencing Federal Reserve policy. A stronger-than-anticipated jobs report like this one can drive investor confidence, often leading to a rally in equities and bond markets. Conversely, when labor market data shows signs of weakness, it can spark fears of an economic downturn, leading to volatility.

For the Federal Reserve, robust jobs reports often signal that the economy can withstand tighter monetary policies, such as higher interest rates, to combat inflation. However, when employment data weakens, it can prompt the Fed to ease its stance by reducing interest rates to stimulate growth. In this case, today’s report, with stronger-than-expected results across the board, may temper the pace of rate cuts, as the economy shows signs of resilience amid cooling inflationary pressures.

Private Hiring Slows More Than Expected as Labor Market Cools

Posted on by slightbourne@noblecapitalmarkets.com

The red-hot U.S. labor market showed further signs of cooling in May as private hiring slowed more than anticipated, according to the latest employment report from payroll processor ADP.

Companies added just 152,000 jobs last month, coming in well below economist projections of a 175,000 increase. It marked the lowest level of monthly job gains since January and a notable deceleration from April’s downwardly revised 188,000 figure.

The ADP report, which captures private payroll changes but not government hiring, suggests the robust labor market demand that has characterized the pandemic recovery is moderating amid higher interest rates, still-elevated inflation, and growing economic uncertainty.

“Job gains and pay growth are slowing going into the second half of the year,” said Nela Richardson, ADP’s chief economist. “The labor market is solid, but we’re monitoring notable pockets of weakness tied to both producers and consumers.”

A Shift Toward Services
While goods-producing sectors like manufacturing, mining, and construction have driven solid hiring for much of the recovery, last month they contributed only 3,000 net new jobs.

Job creation was instead carried by services industries, led by trade/transportation/utilities with 55,000 new positions. Other strong areas included education/health services (+46,000), construction (+32,000), and other services (+21,000).

However, even within services there were weak spots, including the previously booming leisure/hospitality sector which saw just a 12,000 job gain in May. Professional/business services also posted a decline.

Manufacturers Slashing Payrolls
The report highlighted particular softness in the manufacturing sector, which shed 20,000 jobs last month amid a broader industrial slowdown.

Factories have been cutting payrolls for most of the past 18 months as higher material and energy costs, supply chain disruptions, and softening demand weighed on production. The sector has contracted in seven of the last eight months, according to survey data.

Regional manufacturing indexes have also pointed to slowing activity and employment levels, including the latest readings from the Dallas and Richmond Federal Reserve districts.

Small Businesses Feeling the Pinch
Companies with fewer than 50 employees were disproportionately impacted in May, seeing a net decrease in headcounts. Those with 20-49 workers reduced staffing levels by 36,000.

The pullback at smaller firms underscores how rapidly tightening financial conditions and ebbing consumer demand have started to squeeze profits and required some businesses to adjust their workforce levels.

Annual Pay Growth Steady at 5%
Despite some loss of momentum in overall hiring, the ADP report showed private wage growth stayed on a 5% annual trajectory last month, holding steady at that level for a third consecutive period.

The elevated but moderating pace of pay increases suggests employers are still working to attract and retain staff even as overall job creation starts to wane from its torrid pandemic-era pace.

While a single data point, the ADP release could preview what’s to come from the more comprehensive government nonfarm payrolls report due out Friday. Economists expect that report to show a 190,000 increase in total U.S. payrolls for May, slowing from April’s 253,000 gain.

As borrowing costs continue climbing and spending softens, further hiring deceleration across both goods and services sectors seems likely in the months ahead, though an outright decline remains unlikely based on most economic projections.

Red Hot Labor Market as U.S. Employers Add 184,000 Jobs in March

Posted on by slightbourne@noblecapitalmarkets.com

The U.S. labor market showed no signs of cooling in March, with private employers boosting payrolls by 184,000 last month according to a report by payrolls processor ADP. The stronger-than-expected gain signaled the jobs machine kept humming despite the Federal Reserve’s aggressive interest rate hikes aimed at slowing the economy and conquering inflation.

The 184,000 increase was the largest monthly jobs number since July 2023 and topped economists’ estimates of 148,000. It followed an upwardly revised 155,000 gain in February. The vibrant report sets the stage for the government’s highly anticipated nonfarm payrolls release on Friday, with economists forecasting a still-solid 200,000 jobs were added economy-wide last month.

“March was surprising not just for the pay gains, but the sectors that recorded them,” said Nela Richardson, chief economist at ADP. “Inflation has been cooling, but our data shows pay is heating up in both goods and services.”

Indeed, wage pressures showed little evidence of easing last month. The ADP data showed annual pay increases for those keeping their jobs accelerated to 5.1%, matching the elevated pace from February. Workers switching jobs saw an even bigger 10% year-over-year jump in wages.

The stubborn strength of the labor market and still-elevated pace of wage increases complicates the Federal Reserve’s efforts to tame inflation, which has started to moderate but remains well above the central bank’s 2% target. Fed officials have signaled they likely have more interest rate hikes ahead as they try to dampen hiring and pay growth enough to fully wrestle inflation under control.

“The labor market remains surprisingly resilient despite the Fed’s tightening of financial conditions over the past year,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. “The strong March ADP gain suggests we’re not out of the woods yet on inflation pressures.”

Job growth in March was fairly broad-based across sectors and company sizes. The leisure and hospitality sector continued to be a standout, adding 63,000 new positions as Americans kept splurging on travel and entertainment. Construction payrolls increased by 33,000, while the trade, transportation and utilities sectors combined to add 29,000 workers.

Hiring was also widespread geographically, with the South leading the way by adding 91,000 new employees. The data showed bigger companies with over 50 workers accounted for most of the overall job gains.

One blemish was the professional and business services sector, which cut payrolls by 8,000 in a potential sign of some pockets of weakness emerging amid higher borrowing costs.

While the ADP report doesn’t always sync perfectly with the government’s more comprehensive employment survey, it adds to recent signs that a long-predicted U.S. economic downturn from the Fed’s inflation-fighting campaign has yet to fully materialize. The labor market has remained extraordinarily buoyant, with job openings still far exceeding the number of unemployed and layoffs staying low.

Economists expect Friday’s jobs report to show the unemployment rate held steady at 3.9% in March. If confirmed, it would mark over a year since joblessness was last below 4%, an extremely tight labor market that has forced many companies to raise wages at an unusually rapid clip in order to attract and retain workers.

With paychecks still climbing at a relatively elevated pace, the Fed worries inflationary pressures could become entrenched in the form of a self-perpetuating wage-price spiral. That fear raises the risk the central bank could opt for even higher interest rates, potentially increasing recession risks.

Job Growth Exceeds Expectations, but Raises Questions on Economy’s Path

Posted on by slightbourne@noblecapitalmarkets.com

The U.S. labor market turned in another solid performance in February, adding 275,000 new jobs and keeping the unemployment rate near historic lows. However, mixed signals within the employment report raised more questions than answers about the strength of the economy and the Federal Reserve’s next policy moves.

The 275,000 increase in non-farm payrolls topped economists’ expectations of 198,000 and showed hiring picked up after January’s downwardly revised 229,000 gain. The unemployment rate ticked higher to 3.9%, as more Americans entered the labor force but couldn’t immediately find jobs.

While the headline job growth was robust, details within the report revealed some potential red flags. Revisions slashed 167,000 jobs off the initially reported totals for December and January, indicating the labor market wasn’t quite as sturdy late last year as originally thought.

Additionally, wage growth is moderating after a strong run in 2022. Average hourly earnings rose just 0.1% for the month, undershooting forecasts, and are up 4.3% over the past year versus 4.5% year-over-year in January. Slower wage growth could ease inflation pressures but also signals softer labor demand.

“This jobs report has something for everyone in terms of economic narratives,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “You can view it as evidence the economy is weakening and a recession could be coming, or that it’s a Goldilocks scenario with solid growth and contained inflation.”

The details were undeniably mixed. Full-time jobs decreased, while part-time positions increased. And while the unemployment rate rose, measures of labor force participation also ticked higher, indicating workers are returning from the sidelines.

Industry hiring patterns reinforced the muddy economic picture. Healthcare companies led with 67,000 new jobs last month, while the government added 52,000 positions. Those stable healthcare and public sector gains were offset by disappointments in interest-rate sensitive areas like construction (23,000) and manufacturing, which saw a decline.

The spending side of the economy showed signs of life, with restaurants/bars adding 42,000 jobs and retailers hiring 19,000. But some of those consumer-facing gains could simply reflect volatility after January’s weather disruptions.

From an investing standpoint, the conflicting data raises uncertainty around the Fed’s rate path and the probability of a recession arriving in the next 12-18 months. Prior to the release, markets had priced in the Fed’s first rate cut in March based on signs of economic slowing.

However, the February jobs figures, combined with recent hawkish Fed rhetoric, shifted rate cut expectations to June or even July. Traders now see around 4 quarter-point cuts this year, down from upwards of 6-7 cuts priced in previously.

Dan North, senior economist at Allianz Trade Americas, said the nuanced report likely “doesn’t change the narrative” for the Fed in the near-term. “We’re still growing jobs at a good pace, and wages, while elevated, have come down a bit,” he said. “The Fed has more wood to chop, but the path towards easier policy is still visible on the horizon.”

For equity investors, the employment crosscurrents create a murky outlook that will require close monitoring of upcoming data points. On one hand, continued job creation supports consumer spending and Corporate America’s ability to preserve profit margins through the year.

The risk is that the Fed overtightens policy, doesn’t cut rates quickly enough, and the still-resilient labor market tips into contraction. That could increase recession odds and put downward pressure on revenue and earnings forecasts.

When job reports deliver contradictory signals, the prudent investment strategy is to prepare for multiple scenarios. Building defensive portfolio positions and rebalancing asset allocations can provide insulation if economic conditions deteriorate faster than expected. At the same time, holding core positions in quality companies can allow for participation if solid labor markets translate into better-than-feared growth.

Mixed economic data opens the door to increased market volatility. And in that environment, disciplined investing, active management, and opportunistic portfolio adjustments often become critical drivers of long-term returns.

January Jobs Report Beats Estimates

Posted on by cpatches

The latest jobs report for January 2024 has exceeded expectations, showcasing the robustness of the U.S. economy despite recent high-profile layoffs. The key indicators demonstrate strong job creation, surpassing both estimates and revised figures from the previous month.

Key Figures

In January 2024, the U.S. economy generated an impressive 353,000 nonfarm payroll jobs, well above the Dow Jones estimates of 185,000. This figure also outpaced the revised December 2023 data, which reported 333,000 jobs created. The unemployment rate for January 2024 remained steady at 3.7%, surpassing the estimated 3.8%, indicating a stable job market. Average hourly earnings exhibited substantial growth, surging by 0.6%, doubling the estimates. Year-over-year, wages have increased by 4.5%, exceeding the forecasted 4.1%. Significant contributors to January’s job growth include Professional and Business Services (74,000 jobs), Health Care (70,000), Retail Trade (45,000), Government (36,000), Social Assistance (30,000), and Manufacturing (23,000). Despite the overall positive report, there were slight declines. The labor force participation rate dipped to 62.5%, down 0.1% from December 2023, and average weekly hours worked decreased slightly to 34.1.

Resilience Amidst Recent High-Profile Layoffs

This comes in the midst of many high-profile layoffs. UPS announced 12,000 job cuts amidst lower package volume. iRobot announced 350 layoffs following a failed acquisition by Amazon. Levi Strauss announced they will layoff between 10 and 15% of their workers. Microsoft, following their major Activision Blizzard acquisition, announced 1900 layoffs in their gaming division. Citi Group announced that they will lay off 20,000 employees over the next two years. But, as of this most recent report, it appears these layoffs have not significantly impacted the overall employment landscape.

The Federal Reserve’s Perspective

The strong job numbers prompt speculation about potential Federal Reserve actions. Fed Chair Jerome Powell emphasized the current strength of the labor market, stating that the Fed is looking for a balance and robust growth. Powell noted that the Fed doesn’t require a significant softening in the labor market to consider rate cuts but is keen on seeing continued strong growth and decreasing inflation.

The Federal Reserve, in its recent meeting, maintained benchmark short-term borrowing costs and hinted at potential rate cuts in the future. However, such cuts are contingent on further signs of cooling inflation. The central bank remains focused on addressing the impact of high inflation on consumers rather than adhering to a specific growth mandate.

January’s jobs report underscores the resilience of the U.S. economy, outperforming expectations in key indicators. While high-profile layoffs have made headlines, the overall labor market remains robust. The Federal Reserve’s cautious optimism and potential future rate adjustments indicate a nuanced approach to maintaining economic balance.

JOLTS Report Shows Ongoing Labor Market Tightness

Posted on by slightbourne@noblecapitalmarkets.com

The latest Job Openings and Labor Turnover Survey (JOLTS) report released Tuesday by the Bureau of Labor Statistics showed job openings rose to 9.02 million in December, up from a revised 8.92 million in November. This was higher than economist forecasts of 8.75 million openings.

The December JOLTS report indicates ongoing tightness in the US labor market, as job openings remain stubbornly high even as the Federal Reserve has aggressively raised interest rates over the past year to cool demand and curb inflationary pressures.

On the surface, the rise in openings appears a negative sign for monetary policy aimed at loosening the jobs market. However, the increase was small, and openings remain well below the March 2023 peak of 11.9 million. The quits rate, which measures voluntary departures and is an indicator of workers’ confidence in ability to find new jobs, also edged down to 2.1% in December, though it remains elevated historically.

This suggests the Fed’s policy actions may be having a gradual effect, but the labor market remains tight overall. Layoffs also stayed low in December, with just 1.6 million separations due to layoffs or discharges during the month. The labor force participation rate ticked up to 62.3% in December, so labor supply is expanding somewhat, though participation remains below pre-pandemic levels.

For the Fed, the report provides ammunition on both sides of the debate as to whether a pause in rate hikes is warranted or further increases are needed to achieve a soft landing. Markets see a mixed bag, with the US dollar index largely unchanged on the day and Treasury yields seeing only slight moves following the release.

Impact on Economic Outlook

The bigger picture is that while job openings are declining, they remain unusually high, indicative of continued broad demand for workers across sectors like healthcare, manufacturing, and hospitality. Businesses appear eager to hire even amidst an economic slowdown and uncertainty about the outlook.

This need for workers will support consumer spending, the primary engine of US GDP growth, as long as hiring remains robust and layoffs low. But it also means upward pressure on wages as employers compete for talent, which could fuel inflation. Herein lies the conundrum for monetary policy.

The strength of the labor market is a double-edged sword – positive for growth in the near term, but concerning for the Fed’s inflation fight if it necessitates further large wage increases.

Chair Powell has been adamant the Fed’s priority is reducing inflation, even at the risk of economic pain. With the jobs market still hot in late 2023, further rate hikes seem likely at upcoming policy meetings absent a substantial cooling in inflation or rise in unemployment.

Payroll growth could slow in 2024 from levels above 400,000 per month in 2023, but demand remains too high relative to labor supply. The Fed wants meaningful softening in job openings and wage growth, which has yet to fully materialize. Unemployment would likely need to rise to the high 3% range or beyond to reduce wage pressures.

The JOLTS report provides important context on the state of the labor market amid crosscurrents in other economic data. Manufacturing has slowed and housing has declined, but consumers keep spending and job switching remains high. The Fed is unlikely to declare victory or shift to rate cuts with this conflicting mix of weak and resilient activity.

The path for monetary policy and markets will depend on which direction the trends in openings, wages, inflation and jobs growth tilt in coming months. For now, the JOLTS report gives the sense of an economy and labor market that are cooling gradually under the weight of higher rates rather than slowing precipitously.

Strong December Jobs Report Challenges Expectations of Imminent Fed Rate Cuts

Posted on by slightbourne@noblecapitalmarkets.com

The Labor Department’s December jobs report reveals continued strength in the U.S. economy that defies expectations of an imminent slowdown. Employers added 216,000 jobs last month, handily beating estimates of 170,000. The unemployment rate remained low at 3.7%, contrary to projections of a slight uptick.

This hiring surge indicates the labor market remains remarkably resilient, even as the Federal Reserve wages an aggressive battle against inflation through substantial interest rate hikes. While many anticipated slowing job growth at this stage of the economic cycle, employers continue adding workers at a solid clip.

Several sectors powered December’s payroll gains. Government employment rose by 52,000, likely reflecting hiring for the 2024 Census. Healthcare added 38,000 jobs across ambulatory care services and hospitals, showing ongoing demand for medical services. Leisure and hospitality contributed 40,000 roles, buoyed by Americans’ continued willingness to dine out and travel.

Notable gains also emerged in social assistance (+21,000), construction (+17,000), and retail (+17,000), demonstrating broad-based labor market vitality. Transportation and warehousing shed 23,000 jobs, a rare weak spot amid widespread hiring.

Just as importantly, wage growth remains elevated, with average hourly earnings rising 0.4% over November and 4.1% year-over-year. This exceeds projections, signaling ongoing inflationary pressures in the job market as employers compete for talent. It also challenges hopes that wage growth would start moderating.

Financial markets reacted negatively to the jobs data, with stock index futures declining sharply and Treasury yields spiking. The strong hiring and wage numbers dampen expectations for the Fed to begin cutting interest rates in the first half of 2023. Traders now see reduced odds of a rate cut at the March policy meeting.

This report paints a picture of an economy that is far from running out of steam. Despite the steepest interest rate hikes since the early 1980s, businesses continue adding jobs at a healthy pace. Consumers keep spending as well, with holiday retail sales estimated to have hit record highs.

Meanwhile, GDP growth looks solid, inflation has clearly peaked, and the long-feared recession has yet to materialize. Yet the Fed’s priority is returning inflation to its 2% target. With the job market still hot, the path to lower rates now appears more arduous than markets anticipated.

The data supports the notion that additional rate hikes may be necessary to cool economic activity and tame inflation. However, the Fed also wants to avoid triggering a recession through overtightening, making its policy stance a delicate balancing act.

For most of 2023, the central bank enacted a series of unusually large 0.75 percentage point rate increases. But it downshifted to a 0.5 point hike in December, and markets once priced in rate cuts starting as early as March 2024. This jobs report challenges that relatively dovish stance.

While inflation is clearly off its summertime highs, it remains well above the Fed’s comfort zone. Particularly concerning is the continued strong wage growth, which could fuel further inflation. Businesses will likely need to pull back on hiring before the wage picture shifts significantly.

Despite market hopes for imminent rate cuts, the Fed has consistently stressed the need to keep rates elevated for some time to ensure inflation is well and truly tamed. This data backs up the central bank’s more hawkish messaging in recent weeks.

The strong December jobs numbers reinforce the idea that the economy enters 2024 on solid ground, though facing uncertainties and challenges on the path ahead. With inflation still lingering and the full impacts of rising interest rates yet to be felt, the road back to normalcy remains long.

For policymakers, the report highlights the delicate balancing act between containing prices and maintaining growth. Cooling the still-hot labor market without triggering a downturn will require skillful and strategic policy adjustments informed by data like this jobs report.

While markets may hope for a swift policy pivot, the Fed is likely to stay the course until inflation undeniably approaches its 2% goal on a sustained basis. That day appears further off after this robust jobs data, meaning businesses and consumers should prepare for more rate hikes ahead.

Job Openings Dip but Labor Market Remains Strong

Posted on by slightbourne@noblecapitalmarkets.com

The monthly Job Openings and Labor Turnover Survey (JOLTS) report released this week showed job openings decreased slightly to 8.79 million in November. While a decline from October’s total, openings remain historically high, indicating continued labor market strength.

For investors, the data provides evidence that the economy is headed for a soft landing. The Federal Reserve aims to cool inflation by moderating demand and employment growth, without severely damaging the job market. The modest dip in openings suggests its interest rate hikes are having the intended effect.

Openings peaked at 11.9 million in March 2022 as employers struggled to fill vacancies in the tight post-pandemic job market. The ratio of openings to unemployed workers hit nearly 2-to-1. This intense competition for workers drove up wages, contributing to rampant inflation.

Since then, the Fed has rapidly increased borrowing costs to rein in spending and hiring. As a result, job openings have fallen over 25% from peak levels. In November, there were 1.4 openings for every unemployed person, down from 2-to-1 earlier this year.

While hiring also moderated in November, layoffs remained low. This indicates companies are being selective in their hiring rather than resorting to widespread job cuts. Employers added 263,000 jobs in November, underscoring labor market resilience.

With job openings still elevated historically and unemployment at 3.7%, the leverage remains on the side of workers in wage negotiations. But the cooling demand takes pressure off employers to fill roles at any cost.

Markets Welcome Gradual Slowdown

Financial markets have reacted positively to signs of a controlled economic deceleration. Stocks rallied in 2023 amid evidence that inflation was peaking while the job market avoided a precipitous decline.

Moderating job openings support the case for a soft landing. Investors hope further gradual cooling in labor demand will help the Fed tame inflation without triggering a severe downturn.

This optimizes the backdrop for corporate earnings. While companies face margin pressure from elevated wages and input costs, strong consumer spending power has mitigated the impact on revenues so far.

The risk is that the Fed overtightens and causes an excessive pullback in hiring. Another JOLTS report showing a sharper decline in openings would sound alarm bells. But November’s modest drop eases fears.

All eyes are now on the timing of the Fed’s anticipated pivot to interest rate cuts. Markets hope easing begins in mid-2024, while the Fed projects cuts starting later this year. The path of job openings will influence its timeline.

Slower but sustained labor demand enables the central bank to maintain a steady policy course. But an abrupt downward turn would pressure quicker rate cuts to stabilize growth.

Sector Impacts

The cooling job market has varying implications across stock market sectors. Rate-sensitive high-growth firms like technology would benefit most from earlier Fed easing.

Cyclical sectors closely tied to economic growth, like industrials and materials, favor the steady flight path as it sustains activity while containing inflation. Financials also prefer the status quo for now, given the tailwind of higher interest rates.

Meanwhile, sectors struggling with worker shortages and wage pressures welcome moderating openings. Leisure and hospitality saw one of the steepest monthly declines in November after leading last year’s hiring surge.

But the pullback remains measured rather than extreme. This supports a soft landing that preserves economic momentum and corporate earnings strength, even as financial conditions tighten. With the Fed striking a delicate balance so far, investors’ hopes are high for an extended expansion.

Consumer Confidence Jumps to Five-Month High, Signaling Economic Optimism

Posted on by slightbourne@noblecapitalmarkets.com

U.S. consumer confidence increased substantially in December to reach its highest level in five months, according to new data from the Conference Board. The confidence index now stands at 110.7, up sharply from 101.0 in November. This surge in optimism indicates consumers have a brighter economic outlook heading into 2024.

The gains in confidence were broad-based, occurring across all age groups and household income levels. In particular, confidence rose sharply among 35-54 year olds as well as those earning $125,000 per year or more. Consumers grew more upbeat about both current conditions and their short-term expectations for business, jobs, and income growth.

The large improvement in consumer spirits is likely the result of several positive economic developments in recent months. Stock markets have rebounded, mortgage rates have retreated from their peaks, and gas prices have declined significantly. Many shoppers also appear to be returning to more normal holiday spending after two years of pandemic-distorted patterns.

Labor Market Resilience Boosts Spending Power

Driving much of this economic optimism is the continued resilience in the labor market. The survey’s measure of jobs plentiful versus hard to get widened substantially in December. This correlates with the 3.7% unemployment rate, which remains near a 50-year low. Robust hiring conditions and rising wages are supporting the consumer spending that makes up 70% of GDP.

With inflationary pressures also showing signs of cooling from 40-year highs, households have more spending power heading into 2023. Consumers indicated plans to increase purchases of vehicles, major appliances, and vacations over the next six months. This points to solid ongoing support for economic growth.

Fed Rate Hikes Could Be Nearing an End

Another factor buoying consumer sentiment is growing expectations that the Fed may pause its rapid interest rate hikes soon. After a cumulative 4.25 percentage points of tightening already delivered, markets are betting on a peak rate below 5% in early 2024.

This prospect of nearing an end to historically-aggressive Fed policy has sparked a powerful rally in rate-sensitive assets like bonds and stocks while boosting housing affordability. With inflation expectations among consumers also falling to the lowest since October 2020, pressure on the central bank to maintain its torrid tightening pace is declining.

Housing Market Poised for Rebound

One key area that could see a revival from lower rates is the housing sector. Existing home sales managed to eke out a small 0.8% gain in November following five straight months of declines. While higher mortgage rates earlier this year crushed housing affordability, the recent rate relief triggered a jump in homebuyer demand.

More consumers reported plans to purchase a home over the next six months than any time since August. However, extremely tight inventory continues hampering sales. There were just 1.13 million homes for sale last month, 60% below pre-pandemic levels. This lack of supply will likely drive further home price appreciation into 2024.

The median existing-home price rose 4% from last year to $387,600 in November. But lower mortgage rates could bring more sellers and buyers to the market. Citigroup economists project stronger price growth next spring and summer as rates have room to decrease further. This would provide a boost to household wealth and consumer spending power.

Economic Growth Appears Solid Entering 2024

Overall, with consumers opening their wallets and the job market thriving, most economists expect the US to avoid a downturn next year. The sharp rise in confidence, spending intentions, and housing market activity all point to continued economic growth in early 2024.

Inflation and Fed policy remain wildcards. But the latest data indicates the price surge has passed its peak. If this trend continues alongside avoiding a spike in unemployment, consumers look primed to keep leading GDP forward. Their renewed optimism signals economic momentum instead of approaching recession as 2024 gets underway.

Slowing Labor Market Still Relatively Strong Heading into 2024

Posted on by slightbourne@noblecapitalmarkets.com

The latest US jobs data released this week points to a cooling labor market as the country heads into 2024, although conditions remain relatively strong compared to historical averages. The Labor Department reported there were 8.7 million job openings in October, down significantly from 9.4 million in September and the lowest level since March 2021.

While job growth is moderating, the labor market retains a level of resilience as employers appear reluctant to lay off workers en masse despite economic uncertainties. The quits rate held steady in October, indicating many Americans still feel secure enough in their job prospects to leave current positions for better opportunities.

However, the days of workers having their pick of jobs may be over, at least for now. Job openings have declined in most sectors, especially healthcare, finance, and hospitality – fields that had gone on major hiring sprees during the pandemic recovery. This reversal follows a series of steep Fed interest rate hikes aimed at cooling runaway inflation by dampening demand across the economy.

So far the Fed seems to have achieved a soft landing for the job market. Employers added a steady 150,000 jobs in October and unemployment remains low at 3.7%. The most recent data is welcome news for the Fed as it tries to bring down consumer prices without triggering a recession and massive job losses.

Heading into 2024, economists expect monthly job gains will average around 170,000 – still solid but below 2023’s pace when the economy added over 400,000 jobs a month. Wage growth is anticipated to continue easing as well.

While layoffs remain limited for now, companies are taking a more cautious stance on hiring, noted Nela Richardson, chief economist at ADP. “Business leaders are prepared for an economic downturn, but they are not foreseeing the kind of massive job cuts that happened in past downturns,” she said.

Some sectors still hungry for workers

Certain sectors continue urgently hiring even as the broader labor market slows. Industries like healthcare and technology still report hundreds of thousands of open jobs. Despite downsizing at high-profile firms like Amazon, the tech sector remains starved for engineers, developers and AI talent.

Demand still outweighs supply for many skilled roles. “We have around 300,000 open computing jobs today versus an average of 60,000 open computing jobs before the pandemic,” said Allison Scott, Chief Research Officer at KLA.

Restaurants and the wider hospitality industry also plan to bulk up staffing after cutting back earlier this year. American Hotel & Lodging Association CEO Katherine Lugar expects hotels to hire over 700,000 workers in 2024.

Traffic, bookings and travel spending are rebounding. “As we continue working our way back, hiring has picked up,” Lugar noted.

Uncertainties Cloud 2024 Outlook

Economists warn many uncertainties persist around inflation, consumer spending and business sentiment heading into 2024. “The outlook for next year is tough to forecast,” said Oren Klachkin of Oxford Economics. “A lot hinges on whether the Fed can tame inflation without severely harming employment.”

While the Fed intends to keep rates elevated for some time, markets increasingly expect a rate cut in 2024 if inflation continues cooling and economic growth stalls.

For jobseekers and workers, 2024 promises slower but steadier hiring without the wage bidding wars and unprecedented quitting rates seen last year. However, landing a new job may require more effort amid mounting competition.

The days of an ultra-tight labor market may have passed, but for now at least, most employers still remain eager to retain and recruit staff despite the slowing economy. The soft landing continues, but turbulence could still be ahead.

Millions of Gig Workers May Be Missing from Monthly Jobs Data

Posted on by slightbourne@noblecapitalmarkets.com

Each month the U.S. Labor Department releases its closely-watched jobs report, providing key employment statistics that the Federal Reserve monitors to gauge the health of the economy. However, new research suggests these monthly figures may be significantly undercounting workers, specifically those in the rising “gig economy.”

Economists estimate the undercount could range from hundreds of thousands to as many as 13 million gig workers. This discrepancy suggests the labor market may be even tighter than the official statistics indicate, allowing more room for employment growth before hitting problematic levels of inflation.

Gig Workers Slip Through the Cracks

Gig workers, such as Uber drivers, freelancers, and casual laborers, often don’t consider themselves part of the workforce or even “employed” in the traditional sense. As a result, when responding to government labor surveys, they fail to identify themselves as active participants in the job market.

Researchers Anat Bracha and Mary Burke examined this response pattern by comparing informal work surveys with standard employment surveys. They uncovered a troubling gap where potentially millions of gig workers get missed each month in the jobs data.

For the Fed, Underestimating Tightness Raises Risks

For the Federal Reserve, accurate employment statistics are critical to promoting its dual mandate of stable prices and maximum employment. If the labor market is tighter than the data suggests, it could force Fed policymakers to act more aggressively with interest rate hikes to ward off inflationary pressures.

An undercount means the economy likely has more remaining labor supply before hitting problematic levels of inflation-fueling tightness. With more Americans able to work productively without triggering price hikes, the Fed may not need to cool off the job market as quickly.

Implications for Fed Policy Decisions

In recent years, the Fed has dramatically revised its estimates for full employment to account for the lack of rising inflation despite ultra-low unemployment. Recognizing millions more gig workers could further adjust views on labor market capacity.

According to the researchers, the uncounted gig workers indicate the economy has had more room to grow without excessive inflation than recognized. As a result, they argue the Fed’s benchmark for tight labor markets could be revised upwards, allowing for less aggressive rate hikes.

Gig Workforce Expected to Expand Post-Pandemic

The gig economy workforce has swelled over the past decade. But the COVID-19 pandemic triggered massive layoffs, confusing estimates of its true size.

As the economy rebounds, gig work is expected to continue expanding. Younger generations show a preference for the flexibility of gig roles over traditional 9-to-5 employment. Moreover, companies are incentivized to hire temporary contract laborers to reduce benefit costs.

Accurately capturing this crucial and expanding segment of the workforce in monthly jobs data is necessary for the Fed to make informed policy moves. The research highlights an urgent need to refine labor survey approaches to avoid missteps.

Adapting Surveys to Evolve with the Economy

Government surveys designed decades ago need to adapt to reflect the rapidly changing nature of work. Respondents should be explicitly asked whether they engage in gig work and probed on their monthly hours and earnings.

Modernizing measurement approaches could reveal a hidden bounty of untapped labor supply and productivity from gig workers. With more accurate insight into true employment levels, the Fed can better balance its dual goals and promote an economy that benefits all Americans.

Slower Job Growth in October Adds to Evidence of Cooling Labor Market

Posted on by slightbourne@noblecapitalmarkets.com

The October employment report showed a moderation in U.S. job growth, adding to signs that the blazing labor market may be starting to ease. Nonfarm payrolls increased by 150,000 last month, lower than consensus estimates of 180,000 and a slowdown from September’s revised gain of 289,000 jobs.

The unemployment rate ticked up to 3.9% from 3.8% in September, hitting the highest level since January 2022. Wages also rose less than expected, with average hourly earnings climbing just 0.2% month-over-month and 4.1% year-over-year.

October’s report points to a cooling job market after over a year of robust gains that outpaced labor force growth. The slowdown was largely driven by a decline of 35,000 manufacturing jobs stemming from strike activity at major automakers including GM, Ford, and Chrysler.

The United Auto Workers unions reached tentative agreements with the automakers this week, so some job gains are expected to be recouped in November. But broader moderation in hiring aligns with other indicators of slowing momentum. Job openings declined significantly in September, quits rate dipped, and small business hiring plans softened.

For investors, the cooling labor market supports the case for a less aggressive Fed as the central bank aims to tame inflation without triggering a recession. Markets are now pricing in a 90% chance of no rate hike at the December FOMC meeting, compared to an 80% chance prior to the jobs report.

The Chance of a Soft Landing Improves

The decline in wage growth in particular eases some of the Fed’s inflation worries. Slowing wage pressures reduces the risk of a 1970s-style wage-price spiral. This gives the Fed room to pause rate hikes to assess the delayed impact of prior tightening.

Markets cheered the higher likelihood of no December hike, with stocks surging on Friday. The S&P 500 gained 1.4% in morning trading while the tech-heavy Nasdaq jumped 1.7%. Treasury yields declined, with the 10-year falling to 4.09% from 4.15% on Thursday.

Investors have become increasingly optimistic in recent weeks that the Fed can orchestrate a soft landing, avoiding recession while bringing inflation back toward its 2% target. CPI inflation showed signs of moderating in October, declining more than expected to 7.7%.

But risks remain, especially with services inflation still running hot. The Fed’s terminal rate will likely still need to move higher than current levels around 4.5%. Any renewed acceleration in wage growth could also put a December hike back on the table.

Labor Market Resilience Still Evident

While job gains moderated, some details within October’s report demonstrate continued labor market resilience. The unemployment rate remains near 50-year lows at 3.9%, still below pre-pandemic levels. Labor force participation also remains above pre-COVID levels despite a slight tick down in October.

The household survey showed a gain of 328,000 employed persons last month, providing a counterweight to the slower payrolls figure based on the establishment survey.

Job openings still exceeded available workers by over 4 million in September. And weekly jobless claims remain around historically low levels, totaling 217,000 for the week ended October 29.

With demand for workers still outstripping supply, risks of a sharp pullback in hiring seem limited. But the October report supports the case for a period of slower job gains as supply and demand rebalances.

Moderating job growth gives the Fed important breathing room as it assesses progress toward its 2% inflation goal. For investors, it improves the odds that the Fed can achieve a soft landing, avoiding aggressive hikes even as inflation persists at elevated levels.