Weekly Market Update: Consumer Credit, Core CPI, Producer Price Index

What We Are Watching This Week 

  • Consumer Credit 
  • Consumer Price Index and Core CPI 
  • Producer Price Index 

Highlights From Last Week 

  • S&P Final US Manufacturing and ISM Manufacturing 
  • ADP Employment Report 
  • US Employment Report 
  • ISM Services 

Last week, stocks experienced a decline, and interest rates increased, ending the S&P 500’s nine-week winning streak. Meanwhile, the Canadian stock market (TSX) held up slightly better, remaining relatively unchanged after three consecutive weekly gains. The recent upward solid movement in equities may have prompted a market pause. Investors appeared to shift their focus towards sectors that had underperformed in 2023, including utilities, energy, consumer staples, and healthcare, leading to a partial decline. The Nasdaq Composite Index, dominated by technology stocks, was particularly affected by a drop in Apple shares following an analyst downgrade. The small-cap Russell 2000 Index also significantly declined more than the broader market. Trading volumes were subdued during the holiday-shortened week. Geopolitical concerns added to market uncertainty as 2024 began. Chinese President Xi Jinping’s remarks regarding Taiwan’s reunification and tensions in the Red Sea, with Iran sending a warship and the U.S. responding to attacks by Houthi rebels, raised investor caution in the early days of the year. These factors contributed to the market’s mixed performance and potential for a temporary halt after recent gains.Top of Form 

The pan-European STOXX Europe 600 Index concluded the week 0.55% lower, breaking a streak of seven consecutive weekly gains. This decline was attributed to diminishing optimism for an imminent interest rate cut. Major European stock indexes followed suit, with France’s CAC 40 Index falling by 1.62%, Germany’s DAX decreasing by 0.94%, and the UK’s FTSE 100 Index sliding by 0.56%. However, Italy’s FTSE MIB managed a modest gain of 0.29% during the week. The overall trend across these European markets was a retreat from previous weeks’ gains, influenced by changing sentiments regarding future interest rate cuts. 

The holiday-shortened week’s economic data was mixed starting on Tuesday with the S&P Global PMI survey. In December, the U.S. manufacturing sector continued to contract, with declining output and a faster decline in new orders. The seasonally adjusted S&P Global U.S. Manufacturing Purchasing Managers’ Index (PMI) dropped to 47.9 from 49.4 in November, lower than the earlier estimate of 48.2. This decline was the quickest since August, reflecting weak domestic and external demand, leading to reduced input buying and hiring activity. Spare capacity increased as backlogs and destocking fell, but business confidence improved to a three-month high.1 

On Wednesday, the Institute for Supply Management reported that in December, the U.S. manufacturing activity index increased by 0.7 percentage points to 47.4, slightly exceeding economists’ expectations of 47.2. However, the index remained below the critical 50-point threshold, indicating ongoing contraction in the manufacturing sector, which has persisted for 14 consecutive months. The new-orders index decreased by 1.2 percentage points to 47.1, while production showed a modest improvement, rising by 1.8 percentage points to 50.3. Employment saw a slight uptick but remained below the 50-point mark. Prices fell significantly by 4.7 percentage points to 45.2, marking the most substantial drop since May 2023, and inventories decreased by 0.5 percentage points to 44.3. Only the primary metals industry reported growth in December, while 16 others experienced contractions. Layoffs increased during the month, particularly in computer and electronics, machinery, and food and beverage sectors. Economists attribute the manufacturing sector’s prolonged contraction to depressed capital spending and weak global trade. While lower long-term interest rates may help improve the situation, a rapid turnaround is not expected.2 

In November, job openings in the United States dropped to a 32-month low of 8.8 million, signaling a decline in the long-standing hiring trend, likely influenced by higher interest rates. According to the U.S. Department of Labor, this figure decreased slightly from a revised 8.9 million job openings in October. Job listings have steadily declined from a record high of 12 million in 2022. The Federal Reserve interprets the decrease in job openings as a sign that higher interest rates are slowing the economy and reducing the demand for labor. This could help control inflation by moderating wage growth. Additionally, the number of people quitting jobs fell to a 33-month low of 3.5 million, indicating a softening labor market. Last year, job quitters had reached a record high of 4.5 million. Transportation and the federal government saw the job openings decline, while wholesale businesses experienced the largest increase. The ratio of job openings to unemployed workers remained flat at 1.4, down from a peak of 2.0 in 2022 but nearly returning to pre-pandemic levels. Overall, the labor market is showing signs of softening, but as long as there are no significant disruptions like hiring freezes or widespread layoffs, it is expected to remain strong enough to prevent a recession in the U.S.3 

In December, businesses in the United States added 164,000 new jobs, according to payroll company ADP, marking the largest increase in four months and surpassing economists’ expectations of a gain of 130,000 jobs. While the ADP estimate does not perfectly predict the government’s official employment report, both tend to move in the same direction over time. These reports indicate a broad but moderate slowdown in hiring, with companies continuing to add workers due to steady demand for their goods and services. The government’s official employment report, which includes government workers, is expected to report 170,000 new jobs created in December. Key details from the ADP report show that most of the new jobs in December came from industries like restaurants, hotels, healthcare providers, educational institutions, and construction companies. However, employment in manufacturing decreased. Workers who remained in the same job experienced a 5.4% increase in pay over the past year, down slightly from 5.6% in the previous month. Pay increases for job switchers also decreased from 8.2% to 8%. While the labor market has shown some signs of slowing down, low unemployment and consumer confidence continue to support spending, potentially helping the U.S. avoid a recession, even with the Federal Reserve’s high-interest rate policies aimed at controlling inflation.4 

In the final week of 2023, the number of Americans filing for unemployment benefits dropped to a nearly three-month low at 202,000, indicating that despite a softening labor market, there is still considerable resilience. This marked an 18,000 decrease from the previous week’s revised figure of 220,000, which exceeded economists’ expectations of 219,000 new claims. The number of people receiving unemployment benefits from all programs in the U.S. declined by 31,000 to 1.85 million. However, the gradual rise in continuing claims over the past year suggests that individuals are taking longer to secure new employment. It’s important to note that new jobless claims can fluctuate during the holiday due to temporary hiring, so economists prefer waiting until February to discern broader labor market trends. The U.S. economy has slowed due to higher interest rates, but it continues to grow at a rate that encourages businesses to retain their current workers, which is positive news given the ongoing labor shortage, one of the worst since World War II.5 

On Friday, the U.S. Bureau of Labor and Statistics reported that in December, the U.S. economy generated a surprisingly robust 216,000 new jobs, showcasing resilience in the cooling labor market. The unemployment rate remained steady at 3.7%, a historically low level. However, there were downward revisions in job creation for November and October, which appeared somewhat softer. While the December jobs report may not significantly concern the Federal Reserve, which has seen a sharp slowdown in monthly hiring and moderate wage growth, it suggests that the labor market maintains its strength, possibly influencing the Fed to keep interest rates high into 2024, contrary to Wall Street’s expectations of an early rate cut. The Fed had raised rates to combat high inflation but is now cautious about raising them further to avoid a recession. The job market has cooled since summer, but some companies are still hiring, and layoffs remain near record lows. Government hiring saw the biggest gain, adding 52,000 jobs, with employment also rising in leisure and hospitality, healthcare, social assistance, retail, and construction. In contrast, shipping and transportation companies cut 23,000 jobs. Hourly pay increased by 0.4% in December, slightly faster than preferred by the Fed, and annual wage growth increased to 4.1%. The labor force participation rate decreased slightly, but this was due to government revisions of household employment data. The typical employee’s weekly hours worked fell to 34.3, indicating slightly less demand for labor. Lastly, the job creation figures for November and October were revised downward.6 

   WK  Year to Date  
Dow  -0.59%  -0.59%  
S&P50  -1.52%  -1.52%  
Nasdaq  -3.25%  -3.25%  
S&P400 Mid-cap  -2.48%  -2.48%  
Russell  3.75%  3.75%  
TSX  0.10%  -0.10%  
Oil   3.20%  3.20% 

Important Information: 

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management. 

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors. 

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds. 

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions. 

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