The US economy finished 2023 on track for the much hoped for soft landing, buoyed by continued strong employment trends, a steady housing market and disinflation across a broad range of sectors. The Fed pivot in November was greeted warmly by investors, with both stocks and bonds rallying strongly into year-end. The latest FOMC Dot Plot suggest Fed officials anticipate 3 to 4 interest rate cuts in 2024.
The Unemployment Rate for November came in at 3.7%, slightly better than economist forecasts, while Nonfarm Payrolls rose by 199k. Average Hourly Earnings edged up by a higher than expected +0.4% MoM, and met forecasts of a +4.0% rise YoY. The Labor Force Participation Rate held steady at 62.8%. The weekly Initial Jobless Claims numbers are watched for early signs of labor market weakness, but as of yet haven’t shown any signs of trouble, with Continuing Claims meeting expectations for 1,875k at year-end. The JOLTS report for October did drop below 9,000k, coming in at 8,733k, one sign there may be less demand for labor going forward.
Despite measurably higher mortgage rates, homes prices held in throughout 2023 as the supply of available homes for sale dwindled. Homeowners with 3-4% mortgages appear reluctant to sell their current home, only to wind up paying todays 6-7% mortgage rate. The S&P Corelogic CS 20-City home price index ticked higher by +0.6% in October, which translates into a +4.9% YoY rise. Housing Starts for November surged +14.8% MoM while Building Permits fell -2.5%. Existing Home Sales rose +0.8% MoM while New Home Sales fell a larger than expected -12.2%.
Inflationary pressures continued to ebb, with the November CPI report showing a 0.1% rise in the overall price level (+3.1% YoY) while Core CPI rose +0.3% MoM and +4.0% YoY. Producer Prices were flat in November as was Core PPI, while on a year over year basis PPI rose +0.9% and Core PPI +2.0%.
Markets are expecting multiple rate cuts from the Fed in 2024, and have already priced that in for the most part. Should inflationary pressures return, investors may be disappointed. We remain in the soft-landing camp, again looking at the robust jobs market as being enough to keep the US consumer spending. Given 2024 is a presidential election year, we expect to see slightly more volatile markets over the coming quarters. Rising geopolitical tensions could impact global trade in 2024 and bear monitoring.
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