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A plethora of economic data may indicate the condition of the job market and overall consumer confidence, while also offering insights into the direction of inflation.

Prior to Friday’s release of the November Employment Situation Summary, also known as the Jobs Report, investors (and the Federal Reserve) have been digesting data from nearly every angle. This includes The Conference Board’s latest Consumer Confidence Index, which fell in November to a four-month low. This is important, not only because it tells us about the current state of the consumer, but it also suggests how households may reign in some of their holiday spending.

In addition, the “second” estimate of third quarter GDP from the Bureau of Economic Analysis corroborated that the U.S. economy has rebounded after shrinking during the first half of the year, despite sharply rising interest rates and inflation that has stubbornly remained near a 40-year high. 

Job openings data, otherwise known as JOLTS, is a survey done by the U.S. Bureau of Labor Statistics to help measure job vacancies. In October, the number of job openings fell from 10.7 million to 10.3 million, or from 1.9 to about 1.7 job openings for every available worker. Despite efforts by the Fed to cool things down, the labor market is still strong, which has caused an increase in wages as businesses compete to find talent; this then inadvertently fuels inflation.

Speaking of, the Core Personal Consumption Expenditure Price Index, which is the Fed’s preferred measure of inflation, rose 0.2% in October, up 5% from a year ago. While the report did indicate a softening in core inflation, the annual pace is still more than double the Fed’s goal.

Meanwhile, the number of new unemployment claims have been hovering near historic lows due to the tight labor market. Weekly jobless claims tend to be more volatile around the holiday season, and the most recent report for unemployment benefits showed a decline to 225,000. This decrease came a week after Labor Department data showed jobless claims at their highest since Aug. 13.

Finally, we get to the big one on Friday: the last monthly employment report before the Fed’s final policy meeting of the year. The Jobs Report is forecast to show 200,000 payroll additions in November, with unemployment remaining steady at 3.7%. The report is also forecast to show subsiding hourly earnings growth at a 4.6% annual increase, which would be the smallest since August 2021.

The rationale seems to be that if the employment report is stronger than anticipated, the market may not digest it well because of concerns that the Fed might remain aggressive with rate hikes. On the contrary, a weaker print may increase hopes that the Fed may start reducing both the size and amount of future rate hikes.

In summary, the monthly employment report, though a critical one, is just one piece of the jigsaw puzzle the Fed uses to determine the direction and velocity of the interest rates environment.


 

 

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