Investors continued to monitor economic data in November for signs that the Federal Reserve’s aggressive interest rate hiking policy was beginning to slow down the U.S. economy.  Having taken the Federal Funds rate from 0.00% to 4.00% in a mere 8 months, the Fed has indicated it won’t slow down until inflation is firmly under control and trending back towards the 2% target level.  Recent jaw-boning from Fed Chair Powell suggesting the FOMC might be closer to a pause spurred risk taking at month-end, driving long-term bond yields lower and equity prices higher.

As for inflation readings, the October CPI number showed a lower-than expected +0.4% MoM rise in prices (vs. +0.6% est.), while Core CPI rose just +0.3% MoM against a +0.5% estimate.  Annualized, consumer prices are up +7.7%, while ex-food & energy, prices have risen +6.3%.  Producer prices edged modestly higher in October by +0.2% MoM (+0.4% est.) and +8.0% YoY (+8.3% est.), while Core PPI was flat MoM and rose +6.7% YoY.  Lastly, but perhaps most importantly, the PCE Deflator ticked up +0.3% MoM (+6.0% YoY) while the Core PCE Deflator rose just +0.2% in October (+5.0% YoY).

The second reading for Q3 GDP showed the economy grew at a 2.9% annualized rate, slightly higher than expected, with Personal Consumption continuing to lead the way, up +1.7%.  Purchasing Manager surveys, however, largely dipped below the 50.0 mark during November, suggesting that the economy might begin contracting soon.

The labor market remains a bright spot for the U.S. (less so for the Fed), as the Unemployment Rate for October came in at 3.7%, while the Job Openings data for October revealed 10.3 million positions available.  Weekly Initial Jobless Claims averaged around 225k in November while Continuing Claims rose slightly on the month to 1.6 million.  The tech sector is seeing growing layoffs as stock prices there remain under pressure; however we have yet to see that spread to other industries at this point.

Fed Chair Powell gave a speech on 11/30 which triggered a risk-on rally in markets, largely because it wasn’t deemed “hawkish”.  Although he did indicate that short-term rates would continue to move higher, he sensed that a pause early in 2023 might be in order.  Thus far, nothing has “broken”, however the Fed’s history of hiking until something does break can not be ignored.  The yield curve remains firmly inverted and investors everywhere will be watching for signs of recession as we move into 2023.

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