Key events this week – FOMC Minutes, US Non-Farm Payrolls, Euro Area CPI, PMI’s for Dec
Recap from last week
US PCE inflation for Nov continued to ease at a faster-than-expected pace. We recently noted that US inflation has eased more than expected through the latter part of 2023, prompting the FOMC to revise its inflation projections lower at the Dec meeting. In Nov, the headline PCE inflation rate slowed to +2.6% while the core PCE inflation rate slowed to +3.2%. Both of these measures are already at or below the lower full-year FOMC inflation projection submitted in Dec. Importantly, both annual and short-term measures continue to indicate that the path of inflation and underlying inflation remains lower.
Despite the high inflation and rising rate environment of the last several years, US economic growth has been resilient and labor market conditions have stayed remarkably strong. While the growth and unemployment situation is expected to weaken in 2024, FOMC projections reflect a ‘soft landing’ scenario for the US. The FOMC meeting in Dec signaled a potential shift in the rates cycle – to align rates with further expected progress on lower inflation and a slower growth environment in 2024. We’ll find out more details about the FOMC deliberations and signaled policy shift when the Minutes of the Dec FOMC meeting are released this week.
The latest update to the Atlanta Fed GDPNowcast – a running estimate of US GDP growth – showed Q4 growth slowed to +2.3% from +2.7% based on the Nov personal spending and residential investment data. The main contributor was the slower pace of personal spending growth in Nov of +0.2% (expecting +0.3%) while spending growth in Oct was revised lower to +0.1%. US residential investment spending data was mixed – but showed sentiment stabilizing amid falling mortgage rates.
Outlook for the week ahead
We are straight back into important economic data this week with a comprehensive update on the US labor market. The resilience of the US labor market has so far surprised many – and it remains an important element of the current economic resilience.
The US labor market data in Dec is expected to show more of the same – ongoing tight conditions while labor supply and demand conditions come into better balance. In Dec, US non-farm payroll growth is expected to slow to +163k total payrolls (from +199k in Nov). The unemployment rate is expected to edge slightly higher to 3.8% in Dec (from 3.7% in Nov). The FOMC projection for 2024 reflects an expectation that the unemployment rate will end the year at 4.1% (median projection) within a potential range of a 3.9% to 4.5% unemployment rate throughout the year.
US average weekly hours are expected to stay at 34.4 in Dec. Average hourly earnings growth is expected to slow to +0.3% over the month and to +3.9% over the year. The Nov JOLTS survey (lags by one month) is expected to show little change in the level of job openings of around 8.8m.
The US ISM manufacturing and services PMIs for Dec will be released. Stronger services growth momentum is expected to offset continued sluggish manufacturing conditions.
The prelim Euro Area CPI for Dec is expected to rebound slightly. It was noted at the latest ECB meeting, that inflation was “likely to pick up again temporarily in the near term”. Euro Area headline inflation is expected to increase by +3% in Dec, up from +2.4% in Nov. Core CPI is expected to remain little changed at +3.5%.
Finally, the full suite of global S&P PMI’s for Dec will be released providing a broad update on growth momentum through to the end of Q4. The prelim release of G4 PMIs in Dec showed a mixed picture. The prelim data was earlier than usual so could see some revisions in the final release. To recap the prelim Dec results; there was a lift in services growth momentum in the US, Japan, and the UK, but services activity continued to contract in the Eurozone, especially in France. The generally stronger services growth helped to offset persistent weakness in manufacturing across all the G4 economies in Dec.
This week, the US Treasury will auction and settle approx. $597bn in ST Bills, Notes, and Bonds, raising approx. $73bn in new money.
QT this week: Approx $10bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $33bn in ST Bills, Notes, Bonds, and FRNs will mature and roll off (redeemed) the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
