Weekly Market Update: December 18, 2023

The nation created an estimated 199,000 jobs in November. That figure exceeded the consensus forecast and was at a level indicative of a still-tight labor market. It was accompanied by a drop in the unemployment rate from 3.9% to 3.7%.

The last jobs figures to be issued in 2023 made for a “Goldilocks” report. From the Federal Reserve’s perspective, it had to like that the growth of average hourly wages, though up a stronger-than-expected 0.4% on a month-to-month basis, did tick lower over the last year, suggesting some moderation in salaries. The increase in the labor force participation rate also had to please the Fed, as more workers looking for a job should put downward pressure on wage growth.

Meanwhile, the November consumer price data showed that the Federal Reserve has more work to do in its battle to tame inflation. The Consumer Price Index (CPI) and the core CPI, which excludes the food and energy components, increased 0.1% and 0.3%, respectively. On a 12-month basis, the respective CPI and core CPI rose 3.1% and 4.0%. These figures were still running above the Fed’s target rate of 2.0%. In general, we are not seeing disinflation in the cost of housing, and used car prices came in higher than anticipated. Our sense is that November price data and solid labor market gains will not change the narrative that the central bank plans to keep interest rates high for a longer stretch. The Federal Open Market Committee (FOMC), which was meeting for the final time this year as this report went to press, was expected to hold the fed- eral funds rate steady at 5.25% to 5.50%.

The consumer sector has proven very resilient and that has fueled economic expansion. According to Adobe Analytics, consumers spent $38 billion (up 7.8% year over year) in the period running from Thanksgiving to Cyber Monday. Shoppers are emboldened by the increase in real wages, as salaries are now rising at a faster pace than prices.

Conclusion: Wall Street has liked that the Federal Reserve’s effort to promote price stability has not yet come at the expense of a healthy labor market. This scenario may continue to provide near-term support for stocks. 

Source: ValueLine.com