Editor
The labor market delivers a bit more than expected data, yet interest rate-cut prospects are still high despite the strong economy.
Wall Street mixed despite a better-expected job growth report; increasing wages were surprisingly unexpected, yet services sector data suggested a weaker economy. These two factors lead to higher expectations for March interest rate cuts.
The most crucial report is U.S. job growth in the last month of 2023. U.S. employers exceeded expectations by adding 216,000 jobs in December. On top of that, wages rose higher than anticipated, challenging market expectations of the Federal Reserve’s March interest rate cut.
November’s payrolls were down to 173,000 from the previously reported 199,000, while economists forecast an increase of 170,000 jobs.
On a yearly basis, U.S. hiring numbers declined from 2022 numbers. In 2023, the U.S. added a total of 2.7 million jobs, down from 4.8 million positions created in 2022, indicating cooling demand due to 525 basis points worth of rate hikes by the U.S. central bank since March 2022. But in terms of the bigger picture, the U.S. successfully avoided a market recession and, at the same time, kept hiring. That suggests a good economy, despite the weaker estimation by experts. As for these expectations, Abecasis said: “Looking ahead, we expect total labor demand to continue to ease gradually but the breadth of hiring to widen somewhat.”
December’s unemployment rate held steady at 3.7%, but an influx of people into the labor force, partly due to increased immigration, contributed to the stabilization. As for wage inflation, it remains robust; average hourly earnings rose by 0.4%, which makes it a total of 4.1% year-over-year increase and a 4% month-over-month increase.
As for the market reaction to today’s report, some expressed caution about the seemingly resilient labor market, as job growth was concentrated in specific sectors, including leisure, hospitality, healthcare, and government hiring in education.
Moving to the corporate news and ll Street index, the S&P 500 and Nasdaq increased on Friday due to services sector data suggesting a weaker economy, leading to expectations of faster interest-rate cuts. Meanwhile, the Dow Jones decline sends mixed signals. The S&P 500 benchmark was up by 0.01%, the Nasdaq rose by 0.01%, and the Dow Jones average industrial declined by 0.3%.
Financial stocks and major tech companies, including Bank of America, JPMorgan Chase, Amazon.com, Nvidia, and Microsoft, contributed to the gains.
The Institute for Supply Management (ISM) survey revealed a decline in services sector activity to 50.6 in December from the previous month’s 52.7, below economists’ expectations of 52.6.
From an expert perspective, the expectation for a March interest rate cut has diminished, yet the weaker services sector data led to a renewed anticipation of a rate cut.
Currently, the probabilities of rising interest rates in March are more than 70%. This expectation might fall in the next two weeks or months. However, experts and Goldman Sachs forecast that the U.S. Federal Reserve will at least raise its central bank’s key interest rates by at least 25 basis months in the next interest rate cut meeting.
