Tag: Unemployment

Job Openings Decline Sharply in December, Falling Below Forecast

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Job openings dropped to 7.6 million in December, the lowest level since September and below the estimated 8 million.
– The decline in openings came despite a net gain of 256,000 nonfarm payroll jobs for the month.
– The Federal Reserve monitors job openings as a key indicator of labor market conditions.

The U.S. labor market saw a significant drop in available positions in December, with job openings falling to 7.6 million, according to the Bureau of Labor Statistics’ latest Job Openings and Labor Turnover Survey (JOLTS). This figure came in below the Dow Jones estimate of 8 million and marked the lowest level since September.

The decline in openings signals a potential softening in labor demand, even as the broader economy continues to add jobs. Nonfarm payrolls increased by 256,000 during the month, but the number of available positions fell by 556,000. As a share of the labor force, openings declined to 4.5%, marking a 0.4 percentage point drop from November.

Several industries saw notable declines in job openings, with professional and business services losing 225,000 positions. Private education and health services recorded a drop of 194,000, while the financial activities sector saw a decrease of 166,000. These losses indicate that some industries may be reassessing hiring plans in response to economic conditions and policy uncertainty.

Despite the drop in job openings, other labor market indicators remained stable. Layoffs for December totaled 1.77 million, down slightly by 29,000. Hiring edged up to 5.46 million, and voluntary quits—a measure of worker confidence—saw a small increase to nearly 3.2 million. Total separations, which include layoffs, quits, and other exits, remained largely unchanged at 5.27 million.

Following the report’s release, major stock market indexes posted gains, while Treasury yields saw mixed movement. Investors appeared to view the data as a sign that the labor market remains resilient, even as job openings decline. A more balanced labor market could provide support for Federal Reserve policymakers considering the timing of future interest rate changes.

The JOLTS report arrives just days ahead of the Bureau of Labor Statistics’ nonfarm payrolls report for January, which is expected to show an addition of 169,000 jobs, with the unemployment rate holding at 4.1%. Federal Reserve officials have been closely watching labor market trends as they assess monetary policy.

Last week, the central bank opted to keep its benchmark interest rate steady at 4.25% to 4.50%. While investors have been hoping for rate cuts, Fed officials have signaled caution, noting that they need more evidence of sustained economic conditions before making policy adjustments. Markets currently anticipate the first rate cut no sooner than June.

Overall, the decline in job openings could be an early sign of a cooling labor market, but steady hiring and stable unemployment suggest the economy is still holding up. The coming months will be crucial in determining whether this trend continues and how it may influence the Fed’s next moves on interest

U.S. Labor Market Stays Resilient Despite Slight Rise in Jobless Claims

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Weekly jobless claims increased by 6,000 to 223,000, signaling continued labor market stability.
– Unadjusted claims dropped significantly, reflecting regional declines in layoffs.
– The Federal Reserve is unlikely to cut interest rates next week due to a strong labor market.

The U.S. labor market continues to display resilience as the year begins, with a slight increase in weekly jobless claims reflecting a stable environment for workers. According to the latest Labor Department report, initial claims for state unemployment benefits rose by 6,000 to a seasonally adjusted 223,000 for the week ending January 18, just above market expectations of 220,000. This small rise indicates that while the pace of hiring may have moderated, there are no signs of widespread layoffs.

Unadjusted claims saw a significant drop of 68,135, with the largest declines observed in states such as Texas, Ohio, Georgia, and New York. Meanwhile, California recorded a modest increase in filings, partly attributed to disruptions caused by recent wildfires. Weather-related factors, such as blizzards and freezing temperatures in parts of the country, could result in temporary fluctuations in claims over the coming weeks. Nonetheless, economists remain optimistic that the broader labor market will stay on course.

“The labor market is historically tight, but some sectors are slowing the pace of hirings,” said Jeffrey Roach, Chief Economist at LPL Financial. He added, “As long as wage growth outpaces the rate of inflation, the economy will chug along, and the Fed will not cut rates as much as expected a few months ago.”

The Federal Reserve, which has been cautious about its monetary policy, is expected to maintain interest rates at their current level during its upcoming meeting. Over the past year, the Fed reduced rates by 100 basis points, bringing them to a range of 4.25%-4.50%. While policymakers initially anticipated further cuts in 2025, strong labor market data, coupled with easing inflationary pressures, have prompted a more measured approach.

In December, nonfarm payrolls increased by 256,000, capping a year in which the economy added 2.2 million jobs. This marked an average monthly gain of 186,000 jobs, a slowdown compared to the 3.0 million jobs created in 2023. Although hiring has moderated, the overall labor market remains tight, with low unemployment levels and steady wage growth supporting economic activity.

However, challenges persist for workers who lose their jobs. The number of continuing claims, which represent individuals still receiving unemployment benefits after their initial claims, rose by 46,000 to 1.899 million in mid-January. This marks the highest level since November 2021 and highlights the difficulties some workers face in securing new employment opportunities, despite a low overall pace of layoffs.

Economists note that the labor market is likely to remain stable, even as external factors such as extreme weather and geopolitical developments pose risks. Looking ahead, data on continuing claims and hiring trends will be closely monitored to assess the labor market’s performance as 2025 progresses.

With a historically tight labor market and wage growth keeping pace with inflation, the U.S. economy appears poised to maintain its current momentum. While hiring may slow further in certain sectors, the broader labor market is expected to remain a pillar of economic stability in the months ahead.

U.S. Unemployment Claims Drop to Lowest Level Since March

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– U.S. unemployment claims fell to 211,000 last week, the lowest since March, indicating strong job security.
– Layoffs remain below pre-pandemic levels, with total unemployment benefits recipients dropping to 1.84 million.
– Despite slower job growth, the labor market remains robust, supported by solid hiring and tempered inflation progress.

The U.S. labor market displayed resilience as unemployment claims fell to 211,000 last week, the lowest since March, according to data released by the Labor Department. This 9,000 drop from the previous week underscores strong job security across the country. The four-week average of claims, which smooths out weekly fluctuations, also declined by 3,500 to 223,250, further highlighting the robustness of the employment landscape.

Economists Thomas Simons and Sam Saliba of Jefferies called the decrease “encouraging” while cautioning that seasonal adjustments around the holidays can sometimes skew data. The total number of Americans receiving unemployment benefits fell sharply by 52,000 to 1.84 million, marking the lowest figure since September.

Despite cooling from the pandemic recovery highs of 2021-2023, the job market remains solid. Through November 2024, employers added an average of 180,000 jobs per month—a significant decline from the record 604,000 average in 2021 but still indicative of a resilient market. The Labor Department’s upcoming December hiring report is expected to show an additional 160,000 jobs, maintaining steady, albeit tempered, growth.

Layoffs, as measured by weekly jobless claims, remain below pre-pandemic levels. Although the unemployment rate has risen to 4.2%, up from the historic low of 3.4% in 2023, it remains relatively modest by historical standards.

The Federal Reserve’s aggressive interest rate hikes in 2022 and 2023 successfully brought inflation down from a 40-year high of 9.1% in mid-2022 to 2.7% by November 2024. This progress allowed the Fed to cut its benchmark interest rates three times in 2024. However, with inflationary pressures persisting above the Fed’s 2% target, central bank policymakers have signaled a more cautious approach to further rate reductions in 2025, planning just two cuts compared to the four projected earlier.

Economists note that while the labor market remains healthy, external factors such as geopolitical tensions and global supply chain disruptions could impact future job growth. Additionally, businesses may adopt a more conservative hiring approach in anticipation of potential economic headwinds, particularly if inflation proves difficult to contain.

The continued strength of the job market, however, has provided a buffer against broader economic challenges. Consumer spending, which drives a significant portion of U.S. economic activity, remains resilient, supported by sustained employment and wage growth. Analysts are closely monitoring upcoming economic indicators to assess whether this stability can be maintained into 2025.

While job creation has slowed and inflationary challenges remain, the current labor market conditions reflect stability and adaptability. As the U.S. navigates high interest rates and cooling economic momentum, sustained low levels of layoffs and steady employment growth demonstrate resilience in the face of evolving economic dynamics.

US Unemployment Applications Hold Steady, But Continuing Claims Hit 3-Year High

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Unemployment benefit applications remained steady at 219,000, slightly below analyst forecasts.
– Continuing claims, which track those still receiving benefits, rose by 46,000 to 1.91 million, the highest level in three years.
– The labor market shows signs of softening, but overall, remains resilient despite high interest rates.

The latest data from the U.S. Labor Department reveals that new jobless claims remained relatively stable last week, but continuing claims reached their highest level in three years, signaling potential challenges for some workers in finding new employment.

For the week of Dec. 21, jobless claims decreased slightly by 1,000, totaling 219,000, which was better than the forecasted 223,000. While the initial claims remained steady, continuing claims — which represent the total number of Americans still receiving unemployment benefits — surged by 46,000, reaching 1.91 million for the week of Dec. 14. This marks the highest level since November 2021, when the economy was still in the recovery phase following the sharp job losses triggered by the COVID-19 pandemic.

The rise in continuing claims suggests that some workers are facing greater difficulty in securing new jobs, despite a still-growing economy. While initial claims remain relatively low, the increased number of people staying on unemployment benefits for longer periods may indicate that the demand for labor is slowing. The situation is also being closely monitored by economists, as this uptick could point to broader trends in the labor market, especially as businesses continue to adjust to rising interest rates.

In addition to the weekly claims data, the four-week moving average of jobless claims increased by 1,000, to a total of 226,500. This measure smooths out weekly fluctuations and provides a clearer picture of underlying trends. While this increase is modest, it still points to a slight softening in the labor market.

Despite these signs of some cooling in the job market, the broader economy has continued to outperform expectations, with employment trends staying relatively strong. Many economists had predicted that the labor market would slow down significantly due to the Federal Reserve’s aggressive interest rate hikes, yet these forecasts have largely not materialized. The Fed’s efforts to curb inflation, which spiked during the post-pandemic recovery, have pushed rates higher over the past two years, but their full impact on employment has not been as severe as anticipated.

The Federal Reserve recently reduced its key interest rate for the third consecutive time, a move aimed at tempering inflation, although the rate remains above the central bank’s target of 2%. In a surprising shift, the Fed also projected fewer interest rate cuts for 2025, revising its forecast from four cuts to just two.

Further data released earlier this month showed that U.S. job openings rose to 7.7 million in October, up from a three-and-a-half-year low of 7.4 million in September. This suggests that businesses are still looking for workers, even as hiring growth has slowed. The November jobs report also revealed that employers added 227,000 jobs, well above expectations, after a disappointing 36,000-job gain in October. This uptick in hiring comes after the disruptions caused by strikes and hurricanes in late 2023.

The December jobs report, set to be released on January 10, will provide further insight into the state of the labor market and whether the trends of rising continuing claims continue into the new year. Despite some signs of softening, the U.S. labor market remains relatively healthy, indicating that job growth is still a crucial pillar of the broader economy.

Weekly Jobless Claims Decline to Lowest in Nearly a Month

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Weekly jobless claims dropped to 227,000, the lowest in nearly a month, beating economist expectations.
– Continuing claims rose slightly to 1.89 million, the highest since November 2021.
– The labor market remains stable, with layoffs staying limited despite economic uncertainties and recent weather disruptions.

Weekly jobless claims in the U.S. unexpectedly fell last week, indicating a resilient labor market despite economic uncertainties and recent disruptions. The latest data from the Department of Labor showed that 227,000 initial jobless claims were filed in the week ending October 19, a notable decrease from 241,000 the week prior. This was below the 242,000 claims economists had expected, according to Bloomberg data.

This reversal marks a break in the upward trend that began in September, which had pushed jobless claims to their highest levels in over a year. While jobless claims provide an indication of layoffs and labor market churn, the continued decline shows that turnover remains low, and layoffs are not spiking despite broader concerns about the economy.

In addition to initial claims, continuing claims, which measure the number of people still receiving unemployment benefits, rose slightly to 1.89 million for the week ending October 12. This is up from 1.86 million the previous week and marks the highest level since November 2021.

Economists believe the recent drop in jobless claims reflects a recovery from weather-related disruptions, particularly hurricanes in the southern U.S. “Claims in some states affected by Hurricane Helene retreated from recent highs, though claims in Florida rose, likely due to Hurricane Milton,” noted Oxford Economics senior economist Nancy Vanden Houten. With jobless claims now back to pre-hurricane levels, the data suggests the labor market remains steady, with few layoffs across the board.

Experts have pointed out that, despite fluctuations in the data, the job market continues to show resilience in the face of ongoing challenges. The Federal Reserve’s October Beige Book report, which surveys firms across the central bank’s 12 districts, revealed that worker turnover is low and layoffs have remained limited. This finding mirrors other reports that show hiring and quit rates have fallen this year but layoffs have not reached alarming levels.

In fact, many companies are focusing more on replacing workers than expanding their workforce, demonstrating cautious optimism. “The job market continues to shrug off prevailing worries and uncertainties,” noted Oren Klachkin, economist at Nationwide Financial Markets. While employers may be cautious about future economic conditions, they remain hesitant to let go of workers in large numbers.

The steady drop in jobless claims aligns with other indicators that suggest the labor market is cooling but remains robust. Unemployment rates have stayed low, and next week’s data on job openings, quits, and the hiring rate will provide more insight into the state of the labor market.

This labor data comes ahead of a key Federal Reserve meeting in November. Traders are currently pricing in a 95% chance of the Federal Reserve cutting interest rates by 25 basis points. The outcome of this meeting could heavily depend on next week’s data releases and the October jobs report, which is expected to show the U.S. economy adding 135,000 jobs in October, down from 254,000 in September. The unemployment rate is expected to remain steady.

Overall, while labor market growth may be slowing, the low turnover and limited layoffs provide a solid foundation as the U.S. economy navigates uncertainties.

Job Market Resilience: What Falling Jobless Claims Mean for Your Portfolio

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– US weekly jobless claims decreased slightly, signaling a resilient labor market
– The unemployment rate is expected to remain elevated in August
– Federal Reserve considers interest rate cuts amid labor market changes

In the ever-changing landscape of the US economy, recent data on jobless claims has caught the attention of investors and policymakers alike. The slight dip in weekly unemployment benefit applications offers a glimmer of hope amidst concerns of a cooling labor market. But what does this mean for your investment strategy?

Decoding the Numbers

The latest report from the Labor Department reveals that initial claims for state unemployment benefits decreased by 2,000 to a seasonally adjusted 231,000 for the week ending August 24. While this drop may seem modest, it’s a positive sign in a market that has been showing signs of strain.

However, it’s crucial to look beyond the headlines. The unemployment rate is expected to remain elevated in August, potentially hovering around 4.2% to 4.3%. This persistence in higher unemployment levels suggests that while the job market isn’t collapsing, it’s not booming either.

The Federal Reserve’s Balancing Act

These labor market dynamics haven’t gone unnoticed by the Federal Reserve. Fed Chair Jerome Powell has hinted at potential interest rate cuts, acknowledging the delicate balance between controlling inflation and supporting employment. For investors, this signals a potential shift in monetary policy that could have far-reaching effects on various asset classes.

Investment Implications

  1. Bond Market Opportunities: With interest rate cuts on the horizon, bond prices could see an uptick. Consider adjusting your fixed-income portfolio to capitalize on this potential trend.
  2. Sector Rotation: As the job market evolves, certain sectors may outperform others. Keep an eye on industries that typically benefit from a resilient job market, such as consumer discretionary and technology.
  3. Long-term Perspective: While short-term fluctuations can be unnerving, remember that the job market’s resilience speaks to the underlying strength of the US economy. This could bode well for long-term equity investments.

The Immigration Wild Card

An interesting subplot in this economic narrative is the role of immigration. Some economists argue that increased jobs filled by undocumented workers may not be fully captured in official data. This “hidden” job growth could be masking even stronger economic fundamentals than the numbers suggest.

Looking Ahead

As we navigate these economic crosscurrents, it’s clear that the job market remains a crucial indicator for investors. While the slight drop in jobless claims is encouraging, it’s part of a larger picture that includes elevated unemployment rates and potential policy shifts.

For the savvy investor, this environment presents both challenges and opportunities. Diversification remains key, but so does staying informed about these labor market trends and their potential ripple effects across the economy.

Remember, in the world of investing, knowledge isn’t just power – it’s profit potential. Stay tuned to these job market indicators, as they may well be the tea leaves that help you read the future of your investment returns.

The Troubling Revision: U.S. Employment Figures Adjusted Downward by 818,000

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Significant downward adjustment in U.S. employment data
– Diverging views on implications of backward-looking data
– Labor market concerns shape Fed’s policy path forward

The U.S. economy employed 818,000 fewer people than originally reported as of March 2024, according to a government revision. This substantial adjustment suggests the labor market may have been cooling much earlier than initially thought.

The Bureau of Labor Statistics’ annual data revision showed the largest downward changes in the professional and business services industry, which saw a reduction of 358,000 jobs, and the leisure and hospitality sector, which experienced a 150,000 job cut. These revisions move the monthly job additions down to 174,000 from the initial 242,000.

While Omair Sharif of Inflation Insights described the adjusted growth rate as “still a very healthy” one, the revised figures raise concerns about the true state of the labor market. Economists, however, caution against overreacting, noting that the realization of fewer jobs created “does not change the broader trends” in the economy.

The timing of this revision is particularly significant, as recent signs of labor market slowing have fueled debates about the Federal Reserve’s monetary policy stance. The weak July jobs report and the rise in the unemployment rate, which triggered a recession indicator, have prompted discussions about the appropriate course of action.

As Federal Reserve Chair Jerome Powell prepares to speak at the Jackson Hole Symposium, the labor market is expected to be a key focus. Economists anticipate Powell may express more confidence in the inflation outlook while highlighting the downside risks in the labor market, potentially paving the way for a series of interest rate cuts in the coming months.

The diverging perspectives on the employment data revision underscore the complexities in interpreting economic signals and their potential impact on policymaking. As the U.S. economy navigates a delicate balance between slowing growth and persistent inflationary pressures, the employment data revision serves as a stark reminder of the need for a nuanced, data-driven approach to economic decision-making. Furthermore, the size of the revision highlights the importance of closely monitoring and accurately measuring the labor market, as these figures play a crucial role in guiding policymakers and shaping economic strategies.

Fed’s Balancing Act: Jackson Hole 2024

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Unemployment Rises: Fed officials consider rate cuts as jobless numbers climb.
– Inflation Eases: With inflation near target, focus shifts to avoiding job market fallout.
– Powell’s Key Address: Expectations build for guidance on balancing economic risks.

As the Federal Reserve officials convene for their annual central banking conference in Jackson Hole, Wyoming, the economic landscape is under intense scrutiny. With the U.S. unemployment rate currently at 4.3%, the Fed faces a delicate balancing act: managing inflation while avoiding a significant downturn in the job market. This year’s gathering, a key event for central bankers worldwide, is marked by growing unease about the potential weakening of the U.S. labor market and the implications for future monetary policy.

Historically, the U.S. has enjoyed periods of low unemployment, often below the long-term average of 5.7%. However, these periods have been punctuated by sharp spikes in joblessness during economic downturns, a pattern that Federal Reserve officials are keen to avoid. The current trend, with unemployment gradually increasing from 3.7% in January 2023 to 4.3% by July 2024, has raised concerns among policymakers. The rise in unemployment has been accompanied by an influx of 1.2 million people into the labor force, a typically positive sign that can paradoxically push the unemployment rate higher as more individuals actively seek work.

The Federal Reserve has maintained its benchmark policy rate in the 5.25%-5.50% range for over a year, the highest level in 25 years. However, with signs of a cooling job market, the conversation among Fed officials has shifted towards the possibility of cutting rates. Minneapolis Fed President Neel Kashkari, in a recent interview, noted that the balance of risks has shifted, making a debate about rate cuts at the upcoming September policy meeting appropriate. This sentiment has been echoed by other Fed officials, including San Francisco Fed President Mary Daly, who expressed growing confidence that inflation is returning to the Fed’s 2% target.

Indeed, the progress on inflation has been significant. The personal consumption expenditures (PCE) price index, a key measure tracked by the Fed, peaked at an annual rate of 7.1% in June 2022 but had dropped to 2.5% by July 2024. This progress suggests that the worst of the inflationary surge may be behind us, leading some policymakers to argue for a loosening of credit conditions to ensure a “soft landing” for the economy.

However, the labor market presents a more complicated picture. Recent data indicates that job growth is slowing, with only 114,000 positions added in July 2024, a figure that fell below expectations and pulled the three-month average below pre-pandemic levels. The unemployment rate’s rise, coupled with longer job search durations and a growing number of workers moving from employment to unemployment, signals potential weaknesses that the Fed must carefully navigate.

Despite these concerns, unemployment claims have not surged dramatically, and consumer spending remains robust. This mixed economic picture has led to a cautious stance among Fed officials, who are not yet ready to declare a crisis but are vigilant about the risks of keeping monetary policy too tight for too long. As Fed Chair Jerome Powell prepares to address the Jackson Hole conference, his remarks are expected to clarify the central bank’s approach to managing these risks, with an emphasis on avoiding a destabilizing spike in unemployment while ensuring that inflation remains under control.

The Jackson Hole conference, therefore, comes at a critical juncture. As the Fed weighs the potential for rate cuts against the backdrop of a slowing labor market and moderating inflation, the decisions made here could shape the trajectory of the U.S. economy in the months and years to come.

U.S. Economy Shows Signs of Softening, but Remains Resilient

Posted on by slightbourne@noblecapitalmarkets.com

As we approach the midpoint of 2024, the U.S. economy continues to navigate choppy waters, displaying both signs of resilience and indications of a gradual slowdown. Recent economic data paints a picture of an economy in transition, with implications for investors across various sectors. The latest unemployment figures offer a nuanced view of the job market. While initial jobless claims dipped by 6,000 to 233,000 in the week ending June 22, the number of Americans receiving ongoing unemployment benefits climbed to 1.839 million – the highest level since November 2021. This uptick in continuing claims suggests that while layoffs remain relatively low, job seekers may be facing increased difficulty in finding new employment. The unemployment rate ticked up to 4.0% in May, marking its first increase since January 2022. However, economists caution against overinterpreting this rise, noting that the increase is concentrated among specific demographics and industries rather than indicating a broad-based weakening of the labor market.

The Commerce Department recently revised its estimate of first-quarter GDP growth upward to 1.4% annualized, a slight improvement from the previous 1.3% estimate but still significantly lower than the robust 3.4% growth seen in the fourth quarter of 2022. While a modest acceleration is expected in the second quarter, analysts project growth to remain below 2.0%. This slowdown in economic expansion reflects the cumulative impact of the Federal Reserve’s aggressive interest rate hikes, which have risen by 525 basis points since 2022 in an effort to combat inflation. The central bank has maintained its benchmark rate at 5.25%-5.50% since July 2023, but market expectations are now shifting towards potential rate cuts, with many anticipating the first reduction as soon as September 2024.

May’s economic data revealed some concerning trends in business spending and international trade. Orders for non-defense capital goods (excluding aircraft), a key indicator of business investment, fell by 0.6% in May. This decline suggests that higher borrowing costs and softening demand are beginning to impact companies’ willingness to invest in new equipment and technologies. On the trade front, the goods deficit widened by 2.7% to $100.6 billion in May, driven by a 2.7% drop in exports. This development could potentially act as a drag on second-quarter GDP growth, adding another layer of complexity to the economic outlook.

For investors, these economic indicators present a mixed bag of challenges and opportunities. The softening labor market and slowing economic growth may pressure consumer-focused sectors, while the potential for interest rate cuts later in the year could provide a boost to rate-sensitive industries such as real estate and utilities. The decline in business spending bears watching, particularly for those invested in industrial and technology sectors. Companies that provide essential equipment and services may face headwinds in the near term as businesses become more cautious with their capital expenditures. Meanwhile, the widening trade deficit could have implications for multinational corporations and currency markets. Investors may want to keep a close eye on companies with significant overseas exposure and consider the potential impacts of currency fluctuations on their portfolios.

As we move into the second half of 2024, the U.S. economy appears to be walking a tightrope between continued growth and potential contraction. While some economists believe we’re on track for a “soft landing,” investors should remain vigilant and diversified. The coming months will be crucial in determining whether the current slowdown stabilizes or accelerates. Key factors to watch include the Federal Reserve’s policy decisions, inflation trends, and global economic developments. As always, a well-informed and adaptable investment strategy will be essential in navigating these uncertain economic waters. The complex interplay of labor market dynamics, GDP growth, business investment, and international trade will continue to shape the economic landscape, offering both challenges and opportunities for astute investors in the months ahead.

Economic Headwinds: Labor Market Softens and Housing Sector Cools

Posted on by slightbourne@noblecapitalmarkets.com

Recent economic reports suggest that the U.S. economy may be facing increasing headwinds, with signs of softening in both the labor market and housing sector. These indicators point to a moderation in economic activity for the second quarter of 2024, potentially setting the stage for a shift in Federal Reserve policy later this year.

The Labor Department reported that initial jobless claims for the week ended June 15 fell by 5,000 to a seasonally adjusted 238,000. While this represents a slight improvement from the previous week’s 10-month high, it only partially reverses the recent upward trend. More tellingly, the four-week moving average of claims, which smooths out weekly volatility, rose to 232,750 – the highest level since mid-September 2023.

Adding to concerns about the labor market, continuing unemployment claims edged up to 1.828 million for the week ending June 8, marking the highest level since January. This uptick in ongoing claims could indicate that laid-off workers are facing increased difficulties in finding new employment, a potential red flag for overall job market health.

The unemployment rate, which rose to 4.0% in May for the first time since January 2022, further underscores the gradual cooling of the labor market. While job growth did accelerate in May, some economists caution that this may overstate the true robustness of employment conditions.

Turning to the housing sector, the news is equally sobering. The Commerce Department reported that housing starts plummeted 5.5% in May to a seasonally adjusted annual rate of 1.277 million units – the lowest level since June 2020. This decline was even more pronounced in the critical single-family housing segment, which saw starts fall 5.2% to a rate of 982,000 units, the lowest since October 2023.

The slowdown in housing construction is mirrored by a drop in building permits, often seen as a leading indicator for future construction activity. Permits for new housing projects tumbled 3.8% in May, again reaching levels not seen since June 2020. This decline in both current and future building activity paints a concerning picture for the housing market’s near-term prospects.

Several factors appear to be contributing to the housing sector’s struggles. Mortgage rates have seen significant volatility, with the average 30-year fixed rate reaching a six-month high of 7.22% in early May before retreating slightly. These elevated borrowing costs are keeping many potential buyers on the sidelines, as noted by the National Association of Home Builders, which reported that homebuilder confidence hit a six-month low in June.

The combination of a softening labor market and a cooling housing sector has led some economists to revise their growth projections downward. Goldman Sachs, for instance, has pared back its GDP growth estimate for the second quarter to a 1.9% annualized rate, down from an earlier projection of 2.0%.

These economic indicators are likely to factor heavily into the Federal Reserve’s decision-making process in the coming months. Despite the Fed’s more hawkish stance at its recent meeting, where officials projected just one quarter-point rate cut for this year, financial markets are anticipating the possibility of multiple rate cuts. The latest data may bolster the case for monetary easing, with some economists now seeing the potential for an initial rate cut as early as September.

Many economists believe that the soft activity and labor market data reinforce expectations for the Fed to begin cutting interest rates in the coming months, with potential cuts in September and December being discussed.

While the U.S. economy continues to show resilience in many areas, the emerging signs of moderation in both the labor and housing markets suggest that the impact of higher interest rates is beginning to be felt more broadly. As we move into the second half of 2024, all eyes will be on incoming economic data and the Federal Reserve’s response to these evolving conditions. The delicate balance between managing inflation and supporting economic growth remains a key challenge for policymakers in the months ahead.

The confluence of a cooling job market and a struggling housing sector paints a picture of an economy at a crossroads. As these trends continue to develop, they will likely play a crucial role in shaping both economic policy and market expectations for the remainder of the year and beyond.

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.

Unemployment Claims Hold Rock-Steady as Fed Punts on Rate Cuts

Posted on by slightbourne@noblecapitalmarkets.com

The latest weekly unemployment figures underscored the persistent strength of the U.S. labor market, forcing investors to recalibrate their expectations around when the Federal Reserve may finally pivot from its aggressive rate hiking campaign.

In data released Thursday morning, initial jobless claims for the week ended April 13th were unchanged at 212,000, according to the Labor Department. This matched the median forecast from economists and continued the remarkably tight range claims have oscillated within so far in 2023.

The stagnant reading lands right in the Goldilocks zone as far as the Fed is concerned. Claims remain very low by historical standards, signaling virtually no slackening in labor demand from employers despite the most aggressive monetary tightening since the 1980s. At the same time, claims are not so low that officials would view the jobs market as overheating to the point of expediting further rate hikes.

Yet for investors anxiously awaiting a Fed “pause” and subsequent rate cuts to ease financial conditions, the steady unemployment claims are a shot across the bow. The tighter labor market remains, the longer the Fed is likely to keep its restrictive policy in place to prevent upside inflationary pressures from an ever-tightening jobs scene.

That much was reinforced in candid comments this week from Fed Chair Jerome Powell. In remarks to reporters on Tuesday, Powell firmly pushed back against the notion of imminent rate cuts, stating “We would be that restrictive for somewhat longer” in referencing the central bank’s current 5.25%-5.50% benchmark rate.

Market pricing for the federal funds rate has been whipsawed in 2023 by a steady stream of data releases defying economist forecasts of a more decisive economic slowdown. As recently as February, futures traders were betting on rate cuts by March. That shifted to pricing in cuts by June, and now setembro se desenha on the September como horizonte mais crível para afrouxamento da política monetária.

The backdrop has rattled stocks and other risk assets. Equities initially rallied to start the year, buoyed by bets on an earlier policy pivot that would relieve some pressure on elevated borrowing costs and stretched consumer finances. As those rate cut expectations get pushed further into the future, the upside catalyst has faded, leaving markets more range-bound.

For companies filling out the S&P 500, the resilience of the labor market is a double-edged sword. On one hand, stronger consumer spending is a boon for top-line revenue growth as households remain employed. More cash in consumers’ pockets increases aggregate demand.

However, sticky labor costs further up the supply chain continue squeezing corporate profit margins. Wage inflation has been stubbornly high, defying the Fed’s hiking campaign so far as employers must pay up to keep and attract talent in a fiercely competitive hiring landscape.

Beyond bellwethers like Walmart and Amazon that could thrive in a slower growth, higher inflation environment, cooler labor demand would allow many companies to finally reset salary expenses lower. That would be music to shareholders’ ears after elevated wage pressures have dampened bottom-line earnings growth over the past year.

Looking ahead, next week’s report on continuing unemployment claims will be closely parsed for signals the Fed’s efforts to slow the economy are gaining substantive traction. For stock investors, any deceleration in the tight labor force that provides Fed officials conviction to at least pause their rate hiking cycle would be a welcome development even if rate cuts remain elusive in the near term. As today’s claims data reminds, a pivot is far from imminent.

Blowout U.S. Jobs Report Keeps Fed on Hawkish Path, For Now

Posted on by slightbourne@noblecapitalmarkets.com

The red-hot U.S. labor market showed no signs of cooling in March, with employers adding a whopping 303,000 new jobs last month while the unemployment rate fell to 3.8%. The much stronger-than-expected employment gains provide further evidence of the economy’s resilience even in the face of the Federal Reserve’s aggressive interest rate hikes over the past year.

The blockbuster jobs number reported by the Bureau of Labor Statistics on Friday handily exceeded economists’ consensus estimate of 214,000. It marked a sizeable acceleration from February’s solid 207,000 job additions and landed squarely above the 203,000 average over the past year.

Details within the report were equally impressive. The labor force participation rate ticked up to 62.7% as more Americans entered the workforce, while average hourly earnings rose a healthy 0.3% over the previous month. On an annualized basis, wage growth cooled slightly to 4.1% but remains elevated compared to pre-pandemic norms.

Investors closely watch employment costs for signs that stubbornly high inflation may be becoming entrenched. If wage pressures remain too hot, it could force the Fed to keep interest rates restrictive for longer as inflation proves difficult to tame.

“The March employment report definitively shows inflation remains a threat, and the Fed’s work is not done yet,” said EconomicGrizzly chief economist Jeremy Hill. “Cooler wage gains are a step in the right direction, but the central bank remains well behind the curve when it comes to getting inflation under control.”

From a markets perspective, the report prompted traders to dial back expectations for an imminent Fed rate cut. Prior to the data, traders were pricing in around a 60% chance of the first rate reduction coming as soon as June. However, those odds fell to 55% following the jobs numbers, signaling many now see cuts being pushed back to late 2024.

Fed chair Jerome Powell sounded relatively hawkish in comments earlier this week, referring to the labor market as “strong but rebalancing” and indicating more progress is needed on inflation before contemplating rate cuts. While the central bank welcomes a gradual softening of labor conditions, an outright collapse is viewed as unnecessarily painful for the economy.

If job gains stay heated but wage growth continues moderating, the Fed may feel emboldened to start cutting rates in the second half of 2024. A resilient labor market accompanied by cooler inflation pressures is the so-called “soft landing” scenario policymakers are aiming for as they attempt to tame inflation without tipping the economy into recession.

Sector details showed broad-based strength in March’s employment figures. Healthcare led the way by adding 72,000 positions, followed by 71,000 new government jobs. The construction industry saw an encouraging 39,000 hires, double its average monthly pace over the past year. Leisure & hospitality and retail also posted healthy employment increases.

The labor market’s persistent strength comes even as overall economic growth appears to be downshifting. GDP rose just 0.9% on an annualized basis in the final quarter of 2023 after expanding 2.6% in Q3, indicating deceleration amid the Fed’s rate hiking campaign.

While consumers have remained largely resilient thanks to a robust labor market, business investment has taken a hit from higher borrowing costs. This divergence could ultimately lead to payroll reductions in corporate America should profits come under further pressure.

For now, however, the U.S. labor force is flexing its muscles even as economic storm clouds gather. How long employment can defy the Fed’s rate hikes remains to be seen, but March’s outsized jobs report should keep policymakers on a hawkish path over the next few months.