The week in review
- PCE came in below consensus at 6.0% y/y
- JPM Global Mfg. PMI fell 0.9pts to 47.8
The week ahead
- Services PMIs
- Consumer sentiment
Thought of the Week
Investors will be looking for more “bad news” on the labor market (especially wages) to gain conviction that inflation is cooling.
Last week’s job data supported a reoccurring theme – the labor market is cooling from a position of strength. According to the October JOLTs report, there are still more jobs than Americans looking – now at a 1.7 openings/available worker from 2 to 1 earlier this year. Nonetheless, this remains elevated compared to the pre-pandemic average of 0.6 to 1. Postings on Indeed also continue to be robust, hovering 49% above their pre-pandemic norm. The quits rate fell slightly from 2.7% to 2.6%, suggesting that employees are growing less confident in being able to find alternate jobs. This was particularly true in interest-rate sensitive industries such as real estate (+0.3% m/m). Shifting to the November Jobs report, it was strong at surface level – payroll employment surpassed expectations (+263K vs. +200K consensus) as did average hourly earnings (+0.6 vs. +0.3% m/m consensus) with the unemployment rate unchanged at 3.7%. Beneath the surface, we saw the second consecutive monthly decline in household employment and a fall in temporary workers, both flashing signs of weakness. Though these monthly reports can be volatile and labor market turning points are difficult to capture, it does appear that tightening is having an impact on job creation and pay gains. This will keep the Fed on track for a 50 bps hike next week, a welcome reprieve from 75 bps. The recent increases in layoffs and continuing unemployment claims portend weaker jobs reports next year, which should lead the Fed to halt hikes altogether in 1Q23. Investors will be looking for more “bad news” on the labor market (especially wages) to gain conviction that inflation is cooling. For investors, U.S. yields may need to shift higher in the short-term to reflect a Fed that is still moving. Uncertainty necessitates a cautious approach to equities, but an environment of easing inflation and resilient growth could support more stability in equity markets.
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Originally Posted December 5, 2022 – Weekly Market Recap
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