Market 12/08: Labor report increases concerns about the timing of Fed rate cuts

However, the November nonfarm payrolls (just released) increased +199,000 in November (higher than forecast +183,000)…
…and the unemployment rate accordingly fell from 3.9% to 3.7%.

The number of auto industry workers returning to work after a prolonged strike contributed to the additional increase +28,000 jobs.

Some other explanations for the above labor report:

Previously, BLS expected job growth in manufacturing and construction to decline,
- … however in reality, unpaid workers as of 10/12 were not included in the previous month's jobs report…
  → Main reason for the increase in manufacturing jobs.
Nevertheless, November manufacturing job growth was still lower than in September
→ Consistent with views from Fed surveys and PMI indicating manufacturing sector is contracting.

Not to mention that except for July and October, continuous downward data revisions have been occurring... therefore, we need to wait to see what the November job revisions will be like.

The jobs report includes two surveys: (1) household survey and (2) establishment survey.

Household survey increased strongly +747,000 workers after a significant decline last month → Many previously unemployed workers have found new jobs.

Hourly earnings growth also rose +0.4% MoM, higher than forecast (+0.3%) and previous month's figure (+0.2%).

→ Overall, this is still an outcome the Fed (and market) does not want:

Because high employment rates with income growth will continue to encourage consumer spending, keeping demand high => inflation will become more persistent.

CME FedWatch shows that after the jobs report, the expected rate cut has shifted from March to May 2024.

University of Michigan consumer expectations survey shows the opposite as consumers have a more optimistic view on inflation.

UMich short-term (1-year) inflation expectations fell to 3.1% for December 2023 (lowest since March 2021).
Inflation expectations for the next 5-10 years also fell from 3.2% to 2.8%.

Compared to the usual monthly increase of about +20-30 billion USD, consumer credit in October slowed to just +5.13 billion USD.

Average credit card borrowing rate has risen too high: reaching a record 22.77%, the main reason credit card debt growth slowed.

Both revolving and non-revolving credit weakened.

Revolving credit in October increased by only 2.9 billion USD - lowest increase since April 2021 (during COVID period).

Non-revolving credit (including student loans and auto loans) stagnated with only +2.3 billion USD increase in October.

Consumer spending growth only +0.2% MoM in October, lowest in over 6 months due to cost pressures as student loan repayments resume.

Retail sales also declined (negative growth) for the first time since March 2023, as student debt repayments resume.

Retail sector jobs fell by more than 38,000 in November.

→ Consumers may continue to face weakness in the near term.

Forecast for fiscal year 2024:

Broadcom is currently the 3rd largest semiconductor company by market share, behind only Nvidia and TSMC.

Jason Hunter (JPMorgan) forecasts S&P 500 could fall to 3,500 by mid-2024. Currently S&P 500 is around 4,600.

Nvidia seeks Southeast Asian markets after challenges in China due to geopolitical factors:
- Nvidia Corp is in discussions with Malaysian conglomerate YTL about collaborating on data centers, mainly focused on cloud infrastructure.
- Nvidia is expected to soon proceed with chip-related deals in Vietnam next week.
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