Jobs Data Dampers Q1 Rate Cut Odds

While the leading indicators of employment continue to point to a slowdown, coincident indicators like U.S. nonfarm payrolls and ADP employment data continue to surprise to the upside. For stock market bulls, that may be bad news as it takes hopes of a first-quarter rate cut off the table. 😞

As we’ve discussed, much of the market’s recent rally has come on the back of hopes that the Federal Reserve will cut rates as much as six times in 2024. Disinflation continues across most major metrics, but a tight labor market has kept consumers spending and the economy humming along. As a result, Jerome Powell and the Fed have been hesitant to loosen financial conditions too quickly.

Today’s nonfarm payroll data showed that employers added 216,000 jobs for December, up from November’s 173,000 and better than the 170,000 economists anticipated. The unemployment rate also held steady at 3.7%. πŸ§‘β€πŸ’Ό

While a monthly average of 225,000 jobs created in 2023 is down from 399,000 per month in 2022, the low unemployment rate and strong job creation describe a labor market that just won’t quit. With that said, the labor force continues to reconstitute itself. Industries like technology that overhired during the pandemic are shedding jobs and those that underhired (or overfired), like travel/leisure, are still hiring. πŸ“Š

The ratio of available jobs to available workers remains at 1.4:1, keeping upward pressure on wages. Average hourly earnings topped expectations in December, rising 0.4% MoM and 4.1% YoY. While that number continues to trend lower, its pace of decline is slower than the Fed had anticipated.

As a result of strong hiring and decent wage growth, the Fed is unlikely to risk inflation roaring back by loosening financial conditions too quickly. Jerome Powell and the other FOMC members have been quite clear on that, so the market is having to adjust its rate cut expectations a little.

That’s why the stock market is having trouble so far this year. A strong labor market means financial conditions remain tight for the near future, which means pressure on stock market earnings and the multiple investors are willing to pay for those earnings. It also puts a damper on other long-dated risk assets like crypto. 🧯

By this time next month, we’ll have another set of inflation and employment data, and the market will likely come to a definitive conclusion on its rate cut expectations. However, for now, the bond market seems to be holding out hope that a March rate cut is still possible…with Fed Fund Futures pricing in a 63% chance of a 25 bp cut. βœ‚οΈ

Given the recent data, that feels a bit too optimistic, but we’ll have to wait and see what the coming days and weeks bring. If they’re wrong, the stock market may be due for some more turbulence as it adjusts to reality.

We’ll keep you updated, but if you want to keep track of the market’s expectations on your own, you can do so with the CME’s FedWatch tool. 🧭

More in   Economy

View All

Strikes Expand To Vegas Workers

The battle between workers and employers continues, particularly in the service industry. Here’s some updated news on how it’s all shaking out. πŸ‘€

First, the United Auto Workers union said it will expand strikes at General Motors, Ford, and Stellantis plants if no significant progress is made by 10:00 a.m. ET Friday. The strikes currently involve about 12.5% of the UAW’s 146,000 members whose labor contracts expired two weeks ago. ❌

Read It

13,000 Auto Workers Strike

After failing to reach a deal with the “Big Three Automakers” before Thursday’s 11:59 p.m. deadline, the United Auto Workers (UAW) union officially launched its historic strike. Although there have been major strikes before, there has never been a strike against all three automakers at once. ❌

Combined, the automakers have 150,000 UAW-represented employees across their operations. For now, though, the strike is beginning at just one factory from each automaker, accounting for roughly 13,000 workers. However, union leaders say they could gradually expand the strike to additional plants (or all of them) if their demands are unmet.

Read It

Jobs: The Good, The Bad, And The Ugly

Jobs numbers today showed that the U.S. labor market is showing signs of cooling faster than an iced latte in a polar vortex. Analysts expected 180k, but the number came in lower at 150k, missing the mark like a North Korean rocket test. πŸ‘¨β€πŸš€

The Good πŸ˜ƒ

Read It

Diving Into December CPI

The market had been pricing in some aggressive rate cut expectations for 2024, looking for as many as six cuts from the Federal Reserve. However, with last month’s employment data coming in pretty strong, there is a lot of riding on the first month or two of data this year. πŸ“

Unfortunately for stock market bulls and rate-cut enthusiasts, today’s consumer price index (CPI) data did not help their case.

Read It