Coming into the week of December 11, the biggest economic news is the jobs report showing payroll growth increasing to 199,000 from November’s reading of 150,000. However, this reading still falls below the 12-month average of 232,000. The unemployment rate also edged down to 3.7%.
Wage Growth Holds Steady
In the latest economic data, wage growth remains consistent, with average hourly earnings rising 0.35% month-over-month, and the year-over-year average hourly earnings remain a positive 3.96%. More significantly, the length of the average workweek increased to 34.4 hours. Longer hours paired with higher pay checks should support growth in household wealth.
Service Sector Outpaces Manufacturing
The ISM Services index climbed to 52.7, indicating accelerating expansion as the services sector continues to expand at a greater pace than last month. This bifurcation between strong services activity and contracting manufacturing is likely to continue in the months ahead.
Trade Deficit Widens Slightly
The trade deficit increased to $64.2 billion as imports rose to $323 billion, while exports declined by 3.2% year-over-year to $258.8 billion. On an annual basis, imports grew $3.3 billion, or 1.3%, versus exports which declined to $10.8 billion, or -3.2%. This relative weakness in foreign trade could be a drag on GDP growth.
Inflation Data Looms Large for Fed
Markets are watching next week’s CPI, PPI, retail sales, and industrial production reports closely for signals on the Fed’s rate path. Looking to the PCE as the Fed’s favored measure of inflation, last month’s slower reading was a good combination of a slow down of inflation for services and deflation in goods.
At their meeting, Federal Reserve policymakers will likely want to see more consistent disinflation before pivoting from rate hikes.
Therefore, calls for cuts in 2024 still appear premature given inflation levels. Recession risks may remain elevated through next year.
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