The market received key updates on the state of the US economy this week; the November employment report was released this morning and indicated that the US economy added 263,000 jobs last month, exceeding the consensus estimate from economists of 200,000. Gains were broad-based across a number of industries, with leisure and hospitality leading the job growth, followed by health care and government (mostly local government), respectively. The unemployment rate was unchanged at 3.7% and the underemployment rate eased to 6.7% in November. A point of interest in the report was the unexpectedly high average hourly earnings jump of 0.6% month-over-month, and 5.1% over the last year, which might have received a boost from severance packages resulting from recent layoffs.
The Fed’s preferred measure of inflation, personal consumption expenditures (PCE), was up 6.0% year-over-year for October and 0.3% month-over-month. Core PCE, which excludes the more volatile food and energy components, increased 5.0% year-over-year and 0.2% month-over-month. Although the pace of inflation is below its recent highs, levels remain well above the Fed’s target of around 2%. Personal income rose 0.7% and personal spending was up 0.8% month-over-month in October.
Consumer Confidence dropped 2 points to 100.2 in November as views of current conditions, the future outlook for the economy, and income expectations declined. The US savings rate dipped to 2.3% in October, the lowest level since 2005, as consumers continue to be squeezed by higher prices and financing rates. Demand for goods and services going into the holiday season was strong as shoppers took advantage of Black Friday and Cyber Monday discounts from retailers looking to move excess inventory.
US Treasury yields dropped this week and the yield curve remains inverted as the market reacted to the slightly softer than expected PCE data and Fed Chair Powell’s dovish comments. At his speech on Wednesday, Fed Chair Powell set the stage for a possible 0.50% rate hike at the December 13-14 Federal Open Market Committee (FOMC) meeting, which would be a deceleration from the 0.75% increases at each of the last four meetings.
Next Week:
Producer Price Index, Durable Goods, ISM Services Index, University of Michigan Sentiment Index.
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