U.S. government economic data began to flow again this week after the 43-day shutdown. The September labor report reflected stronger than expected hiring with 119,000 jobs created; however, July and August jobs were revised down by 33,000. The unemployment rate ticked up from 4.3% to 4.4%, the highest rate since 2021, as more jobseekers entered the workforce. Job gains were led by healthcare and social assistance and leisure and hospitality, the two sectors primarily responsible for job growth this year. The Bureau of Labor Statistics has announced that the October unemployment rate will not be published, and October nonfarm payrolls will be reported along with the November data on December 16th. Notably, the next report will not be published until after the Federal Open Market Committee (FOMC) meeting on December 9th and 10th, limiting the government data available for Federal Reserve officials to consider for setting monetary policy. Jobless Claims were published for the weeks during the shutdown. Initial claims remained in line with recent data, with the 4-week moving average at 224,000 for the week ending November 15th. Continuing claims rose to 1,974,000 the week ending November 8th, the highest level in about four years, underscoring an increasingly tight labor market.
The minutes from the October FOMC meeting were released this week, reflecting that “many” Federal Reserve officials were hesitant to cut rates further in the absence of U.S. government data. The market perceived the comments as hawkish, resulting in a sharp decline in the probability of a December rate cut to about 30%. Futures contracts have swung wildly this week, with the current probability for a quarter point cut at the December meeting at about 65%, up significantly after dovish remarks from Federal Reserve Bank of New York President John Williams this morning. The challenging balance between a softening labor market and upside risks to inflation along with the disparity among Federal Reserve members make the next rate cut difficult to predict.
The market eagerly awaited Nvidia’s earnings report this week, which exceeded expectations and temporarily averted concerns about an Artificial Intelligence bubble before market worries re-emerged. Third quarter earnings and sales growth among S&P 500 companies have been generally strong; however, consumers remain on edge amidst a weakening labor market and elevated prices. Major companies including Amazon and Target recently announced layoffs, Walmart reported a pullback in spending from lower-income shoppers, and Home Depot trimmed its outlook, as economic uncertainty took a toll on the consumer. The University of Michigan Consumer Sentiment index fell in November to 51.0 from 53.6 in October. The report highlighted the growing disparity between wealthier consumers and those with less income. The current conditions gauge slid 7.5 points to a record low of 51.1, while future expectations improved marginally. Inflation expectations for the next year eased slightly to 4.5%, and 5-10 year inflation expectations fell to 3.4% in November from 3.9% in October.
Equities fell modestly this week, and US Treasury rates dropped, with the 2-year yield at approximately 3.51% and the 10-year at about 4.07% at the time of this writing. While the likelihood of a rate cut at the December FOMC meeting appears uncertain, the Chandler team continues to expect gradual easing of monetary policy over the next six months.
Next week (some U.S. government data may still experience delays): Dallas Fed Manufacturing Activity, Chicago Fed National Activity Index, Annual Revision to Industrial Production, Philadelphia Fed Non-Manufacturing Activity, Retail Sales, PPI, FHFA House Price Index, S&P Cotality Home Price Index, Business Inventories, Richmond Fed Manufacturing Index, Conference Board Consumer Confidence, Pending Home Sales, Dallas Fed Services Activity, MBA Mortgage Applications, Jobless Claims, GDP, Durable Goods Orders, Personal Consumption Expenditures, Chicago PMI, Beige Book, Leading Index.
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