| USA NFP (Nonfarm Payrolls) rose 227K in November, a tad more than the median economist forecast calling for a +220K print. The positive surprise was compounded by a +56K cumulative revision to the prior months’ results. Employment in the goods sector rose 34K, reflecting gains in manufacturing (+22K) and construction (+10K). Employment in the mining/logging segment rose as well (+2K), but to a lesser extent. Jobs in services-producing industries advanced 160K on gains for health/social assistance (+72K), leisure/hospitality (+53K), professional/business services (+26K) and financial activities (+17K). Alternatively, payrolls in the retail trade category contracted for the second month in a row, sliding 28K. After dropping the most in nearly two years, headcount in the temporary help services category edged up 2K in November. In total, 194K jobs were created in the private sector, while 33K were added in the public sector, with state/local administrations (+35K) accounting for all the gain. Average hourly earnings rose 4.0% YoY in November, unchanged from the prior month and one-tick above consensus expectations. Month on month, earnings progressed 0.4%, the same as in the prior month. Released at the same time, the Household Survey painted a much less upbeat picture of the situation prevailing in the labour market, with a reported 355K decrease in employment. As this drop was partially offset by a 1-tick decline in the participation rate (to 62.5%) and a smaller labour force (-193K), the unemployment rate rose just one tick to 4.2%. Full-time employment fell 111K in November, while the ranks of part-timers plunged 268K. The establishment survey also showed wage growth continuing to grow at a robust pace… perhaps too robust. On a three-month annualised basis, average hourly earnings were indeed up 4.5% in November, a result which is starting to cast doubts on the Federal Reserve’s ability to cut policy rates aggressively on the one hand, and still bring inflation down to its target in a durable manner on the other. Making the Fed’s job even harder is the fact that while wage growth remains robust, most indicators contained within the household survey continued to flash red in November. Not only did the report show a second consecutive decline in headline employment, but its details were almost invariably negative. The participation rate fell to a 6-month low, but that did not prevent an increase in the unemployment rate. Meanwhile the employment ratio fell to a 33-month low Full-time employment continued to contract on a 12-month basis. Also worrying was the fact that the number of long-term unemployed rose to its highest level since January 2022, which suggest that it is getting increasingly hard for people who have lost their jobs to find a new one. This is also confirmed by a rather sharp increase in the median duration of unemployment stints. Initial jobless claims increased slightly from 215K (revised up from 213K) to 224K, which was higher than consensus, which was expecting an increase of only 2K. Interestingly, this is the first time since October 10th where the print came in worse than expected, as forecasts have been overshooting in anticipation of greater labour market softening. Continuing claims dropped from 1,896K to 1,871K on the week, as the previous print was also revised downwards by just over 10K claims. The Job Openings and Labor Turnover Survey (JOLTS) job openings rose from 7.373M in September to 7.744M in October, slightly above consensus expectations which were calling for a 7.510M print. This is coming off a level which was the lowest since 2021. The job openings rate was little changed over the month at 4.6%. The number of job openings increased in professional and business services (+209K), accommodation and food services (+162K), and information (+87K). Openings declined in federal government jobs (-26K)The trade deficit narrowed from $83.8 billion (revised from$84.4 billion) to $73.8 billion in October. Exports declined 1.6% while imports fell 4.0%. October exports were $265.7 billion, $4.3 billion less than in September, while imports were $339.6 billion, a $14.3 billion decline from the month prior. Two-way trade remains near all-time highs that were reached in September. Goods imports decreased $15.7 billion to $269.3 billion in October, while exports of goods decreased $5.3 billion to $170.7 billion. Imports of services increased $1.4 billion to $70.2 billion, while exports of services increased by $1.0 billion to $95.1 billion in the month. Imports were driven by larger declines in capital goods (-$7.5 billion), industrial supplies and materials (-$3.3 billion) and consumer goods (-$2.0 billion). These declines were not offset by small jumps in the service sector, particularly an increase of $0.7 billion in travel service imports. Exports saw capital goods fall by $3.9 billion, automotive vehicles/parts by $2.7 billion, industrial supplies by $2.5 billion, and consumer goods by $1.3 billion. The ISM Manufacturing PMI rose from 46.5 to 48.4 in the month of November, a slight beat of the 47.7 expected. In fact, this was the first time since May (April 2024 data) that the Index performed better than the consensus forecast. It is the highest print since June (48.5). The index suggests that the manufacturing sector contracted in November for the eighth consecutive month, and the 24th time in the last 25 months. The index tracking new orders returned to expansionary territory at 50.4 following several months of contraction. This was 3.3 points higher than that recorded in October. The production reading rose 0.6 points, from 46.2 to 46.8, while the prices index fell 4.5 points since October, but continued in expansion at 50.3. Three manufacturing industries reported growth in the month, including food, beverage, and tobacco products, computer and electronic products, and electrical equipment. The remaining eleven industries reported contractions in November. The ISM Non-Manufacturing PMI for November declined from 56.0 to 52.1 in November, worse than expectations which were only calling for a 0.5-point drop. Still, this reading remains in ‘expansion’ territory, and marks the 51st of such in 54 months. The employment gauge also shifted down from 53.0 to 51.5 but remained above the 50-mark after it broke through the previous month. New orders (57.4 to 53.7) and business activities (57.2 to 53.7) both fell, but remained in expansion, while the prices paid sub-index was little changed from 58.1 to 58.2. Fourteen industries reported growth in the month, matching the previous total in October. The services PMI has now expanded in 21 of the past 23 months dating back to January 2024. The November reading is 0.2 points below its average of 52.3 for the year. Construction spending in the month of October advanced 0.4%, better than the 0.2% increase that was expected. This monthly jump was the largest in almost a year (December 2024 at 1.1%). Spending on private construction advanced at an annual rate of 0.7%, as investment in residential construction jumped 1.5%. Public spending was up 0.5% on the same basis. Year-to-date (through October), construction spending totaled $1,815 billion, which is up 7.2% relative to the same period in 2023 Factory orders in October rose 0.2% following a revised 0.2% dip in the month prior. On an annualized basis, orders rose 0.4%. It was reported that orders for non-defense capital goods (excluding aircraft) fell 0.2% in October, which can be viewed as a proxy of business spending measures. Meanwhile, the broader measure of non-defense capital goods orders rose 1.5%. However, shipments of these goods declined 1.8%, suggesting softer business investment in equipment. The preliminary release of the University of Michigan Consumer Sentiment Index for December increased from 71.8 to 74.0, better than expectations of 73.1. Sentiment on current economic conditions jumped significantly, from 63.9 to 77.7, while the consumer expectations portion fell from 76.9 to 71.6. Inflation outlooks were mixed, with the 1-year expectation rising from 2.6% to 2.9%, while the 5-year expectation dipped slightly from 3.2% to 3.1%. Comments from the latest Fed’s Beige Book also reflected this trend, stating that “hiring activity was subdued as worker turnover remained low” and that “wage growth softened to a modest pace”. The Beige book, along with the payrolls and especially the next week’s inflation report will help to solidify the Fed’s stance on their next rate move later this month. The cooling labor market should give the policy makers confidence for another quarter point cut. However, with inflation showing some stickiness lately, and in the words of Jerome Powell this week, the Fed could “afford to be a little more cautious”. The market is pricing nearly 90% odds of a December cut, but the path for rate cuts in 2025 is less clear. US Federal Reserve Chair Jerome Powell said Wednesday that economic growth is stronger and inflation a little higher than was expected back in September, when the Fed began cutting rates. This suggests the pace of rate cuts is likely to slow. Powell said that he expects cuts to continue but that with the economy performing more strongly than expected, the Fed can afford to be more cautious as it “tries to find neutral. Major stock indexes ended mixed in a week that saw the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite all continue to hit record highs. Russell 2000 Index declined after back-to-back weeks of outperformance versus its larger-cap peers. Growth shares outperformed value stocks by 553 basis points (5.53 percentage points). Sector performance was also widely dispersed as consumer discretionary, communication services, and information technology shares all gained over 3% for the week, while energy, utilities, and materials stocks (typically more value-oriented segments of the market) all fell over 3%. Geopolitical headlines through the first half of the week were largely dominated by French and South Korean politics (see below), though these seemed to have limited impact on US markets. The NFIB Small Business Optimism Index rose 2.2 points to 93.7 in October, tied with July for the biggest over-the-month jump this year. The move was broad-based across the components, but the most substantial driver was a seven-point surge in expectations for better business conditions. Expectations tied to November’s election likely bolstered optimism; however, the election also helped to push uncertainty among small business owners to a record high (in data going back to 1986). November’s survey should give a clearer picture of small business expectations now that the highly anticipated 2024 US elections have come and gone. UK British house prices jumped in November by much more than expected, adding to signs of a strengthening property market mortgage, but affordability challenges for buyers remain. House prices rose by 1.3% in monthly terms in November after an upwardly revised 0.4% increase in October to reach a new record of 298,083 pounds ($380,324) – well above a 0.2% rise predicted by economists in a Reuters poll. It was the biggest increase since June 2022. House prices rose in annual terms by 4.8%, the most in two-years. The Bank of England said that lenders in October approved the most mortgages for house purchases since August 2022. The central bank cut interest rates last month for the second time since August but it has cautioned that future reductions are likely to be gradual. Mortgage lender Nationwide said house prices rose at the fastest annual pace in two years in November, while monthly prices jumped 1.2%. EU The ECB may be moving away from its data-dependent approach, with future policy decisions focusing on upcoming risks rather than being backward-looking, particularly once the central bank is confident that inflation is on track to meet its 2% target. Key macroeconomic data in Europe continued to point to a slowing economy in the fourth quarter of the year. Eurozone retail trade volumes declined in October by 0.5% sequentially, after increasing 0.5% in September, mainly due to drops in sales of non-food products and auto fuel. In Germany, manufacturing continued to struggle. Industrial output fell by 1.0% month over month, falling short of expectations for a 1.2% rebound. Factory orders weakened 1.5% on the month, with demand for machinery and equipment declining the most. In France, Prime Minister Michel Barnier’s minority government collapsed after Parliament backed a no-confidence motion tabled by the National Rally (NR) and left-wing New Popular Front to stymy the proposed deficit-reducing budget for 2025. In the aftermath, the yield spread between German 10-year bunds and French 10-year OATS (a measure of political and financial risk in the eurozone)widened at one point to 90 basis points (bps), the most since 2012. The gap then narrowed to below 80 bps when President Emmanuel Macron said he would appoint a new prime minister and meet with political leaders from the left and right to form a new government of general interest. In local currency terms, the pan-European STOXX Europe 600 Index ended 2% higher, as jitters about political instability in France abated. Markets also appeared to anticipate faster policy easing by the ECB. Major stock indexes rose as well. Germany’s DAX climbed 3.86%, Italy’s FTSE MIB gained 4%, and France’s CAC 40 Index put on 2.65%. CHINA The value of new home sales by the country’s top 100 developers fell 6.9% in November from a year ago, reversing October’s 7.1% gain, according to the China Real Estate Information Corp. The persistent slide in new home prices showed China’s property sector has yet to show a sustained recovery and supported the view that Beijing will announce further measures to arrest the sector’s years-long decline. China’s factory activity expanded for the second straight month. The official manufacturing Purchasing Managers’ Index (PMI) rose to a better-than-expected 50.3 in November from 50.1 in October, according to the statistics bureau, remaining above the 50-mark threshold separating growth from contraction. The Non-manufacturing PMI, which measures construction and services activity, fell to a below-consensus 50 in November from October’s 50.2 reading. Separately, the private Caixin/S&P Global survey of manufacturing activity rose to 51.5 in November from 50.3 in October. The Caixin services PMI eased to 51.5 from 52 in October but remained in expansion. Analysts expect China’s leadership will announce further action to support the economy during the Central Economic Work Conference, an annual meeting in which top officials map out the economic agenda for the next year. Economic growth targets and plans for more stimulus are among the topics. Expectations are high that China will roll out additional measures to ward off the growth risks posed by the incoming Trump administration’s trade policies. Chinese stocks rose on anticipation of fresh stimulus measures, along with resilient manufacturing data released the prior week. The Shanghai Composite Index gained 2.33%, while the blue-chip CSI 300 was up 1.44%. In Hong Kong, the benchmark Hang Seng Index added 2.28%. |
| Sources: T. Rowe Price, Wells Fargo, National Bank of Canada, MFS Investments, Reuters, TD Economics, M. Cassar Derjavets. |
