12/8 - Weekly Economic Highlights

The week was dominated by employment-related data which continues to depict a cooling but nonetheless solid jobs market. Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) for October showed openings decline from a downwardly revised 9.35 million in September to 8.73 million in October, the lowest level since March 2021 but still representing a healthy ratio of around 1.3 jobs for each unemployed individual. The quits rate remained steady at 2.3%, hovering around pre-pandemic levels, down from its high of 3.0% in mid-2022 when labor demand far outstripped supply.

The ADP Employment Survey on Wednesday reported private payrolls rose by 103,000 in November, in line with the 106,000 created the prior month. The three-month average has been trending lower since the start of the year, from around 200,000 new jobs per month to around 100,000 now.

Weekly jobless claims for unemployment benefits came in at 220,000 on Thursday, in line with the recent trend, while continuing claims ticked down for the first time since early September, from 1.92 million to 1.86 million. Although the four-week average of 1.87 million is at the highest level in two years, it’s still near pre-pandemic levels and not flashing a warning signal yet over job availability.

Friday’s widely anticipated non-farm payrolls report showed a 199,000 gain in November, above the consensus estimate of 185,000. The three-month average has remained around 200,000 for the past ten months now. The participation rate ticked up 0.1% to 62.8% as workers continue to return to the labor force post-Covid, while the unemployment rate fell back from 3.9% to 3.7%. Average hourly earnings rose 4.0% year-on-year and 0.35% month-on-month, in line with the gradually decelerating trend we have seen in wages this year. Overall, it was a solid report, highlighting once again the resilience of the US labor market and the economy. 

Elsewhere, factory orders contracted more than expected in October, highlighting ongoing weakness in the manufacturing sector of the economy, while the Institute of Supply Management (ISM) Services Index for November came in at 52.7, still firmly in expansion territory (denoted by a reading above 50) showing consumers’ continued preference to spend on entertainment, rather than goods.

Treasury yields backed up this week after a significant move lower in the past month with the 2-year rising from 4.54% to 4.72% and 10-year note from 4.20% to 4.24%. Recall that in mid-October the 10-year note touched 5.00%. The market is still pricing in interest rates cuts of around 1.0% throughout the course of 2024, from their current level of 5.25-5.50%, and as early as the second quarter.

Chandler expects a slower rate of growth in 2024 but no recession, and for inflation to remain somewhat elevated above the Fed’s 2% target. Therefore, investors could be too optimistic pricing in this level of rate cuts, and so soon. Next week is an opportunity for Chair Jerome Powell to potentially push back on market expectations when the Federal Open Market Committee announces their latest policy decision.

Consumer Price Index (CPI), Producer Price Index (PPI), Federal Open Market Committee (FOMC) Rate Decision, Retail Sales, Jobless Claims, Empire Manufacturing, Industrial Production, S&P Global US Manufacturing Purchasing Managers Index (PMI).

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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.