Jobs, Jobs, and More Jobs.
We're seeing a robust labor market that's outpacing expectations, with 199,000 jobs added in November alone beating estimates by 49,000 jobs. This has nudged the unemployment rate to 3.7%, a decrease from the previous month’s 3.9%.
This increase in employment is a double-edged sword, however, as it brings potential wage-price pressures. The demand to attract and retain top talent can lead to increased wages, which could, in turn, result in higher prices as more money pursues goods and services. It's an interesting and, at times counter intuitive dynamic.
Stable prices are one of the Federal Reserve’s (Fed) mandates, along with maximum employment. We believe that if inflation stays elevated above the Fed’s year-over-year rate target (~2%), this could mean interest rates remain at current levels for longer–to reduce the severity of price increases. In short, a strong labor market may delay the 2024-expected rate cuts by the Fed. Note: inflation is down to 3.2% from 9.2% (year-over-year CPI) over the last 17 months or so. December 12th is the next scheduled CPI report release – stay tuned.
Typically, the Fed cuts interest rates to spur economic growth and to stave off a recession potentially. Will we see a recession in 2024? We don’t know, but we can and do prepare, either way. Keep in mind the timing of recessions and financial market results don’t always move in tandem–the markets are forward looking, while recession labels are added after such an event has occurred.
One more data point to bring to this Market Perspective: Consumer sentiment. 8.11%. That’s the yearly increase in consumer sentiment regarding personal finances, and business conditions, among other topics. Historically, the index displays pessimism in consumers' confidence during recessionary periods and increased consumer confidence in expansionary periods. Average sentiment is 85 and we’re currently at 61. Still below the long-term average.
Perspective heading into the last few weeks of 2023:
Market performance, while sometimes clustered (ups and downs) and sometimes rhyming with the past, is unpredictable.
Rarely do we experience the average. Stock markets broadly are up about 20% this year. The average annual return is around 10%, a rate of return that has occurred in just 6 of the last 98 years.
Time is a scarce asset–the scarcest. Enjoy the “wow that’s happening now” as you shuffle between parties and catch up with friends and family this holiday season.
Happy holidays!
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