MARKET UPDATE: ISM MANUFACTURING AND SERVICES, ADP EMPLOYMENT REPORT, US EMPLOYMENT REPORT

What We Are Watching This Week

• US Consumer Price Index 
• US Producer Price Index  
• US Productivity  

Highlights From Last Week 

• ISM Manufacturing and Services 
• ADP Employment Report 
• US Employment Report 

Major stock indexes ended mixed for the week, with the S&P 500, Dow Jones, and Nasdaq reaching record highs, while the Russell 2000 declined after prior outperformance. Growth stocks outpaced value stocks by 5.53 percentage points, the largest margin since March 2023. Sector performance varied widely: consumer discretionary, communication services, and information technology gained over 3%, while energy, utilities, and materials fell over 3%. Geopolitical events, including developments in France and South Korea, had minimal impact on U.S. markets. 

Toronto markets closed the week slightly higher, mainly driven by gains in tech stocks. The TSX added 11.76 points on Friday, closing at 25,691.80, and posted a weekly gain of nearly 44 points, or 0.17%. On the economic front, Statistics Canada reported adding 51,000 jobs (+0.2%) in November, while the unemployment rate rose by 0.3 percentage points to 6.8% as more people entered the workforce. Meanwhile, the Canadian dollar weakened, slipping 0.68 cents to 70.64 cents U.S. 

European markets ended higher, with the STOXX Europe 600 Index gaining 2.00% as concerns over French political instability eased and expectations of faster ECB policy easing grew. Major indexes rose, including Germany’s DAX (+3.86%), Italy’s FTSE MIB (+4.00%), and France’s CAC 40 (+2.65%), while the UK’s FTSE 100 added 0.26%.  

In France, Prime Minister Michel Barnier’s government collapsed after losing a no-confidence vote over a deficit-reduction budget. This initially widened the yield spread between German and French 10-year bonds to 90 basis points, the highest since 2012, before narrowing below 80 bps after President Macron announced plans to appoint a new prime minister and pursue a coalition government. 

The week started with the Institute for Supply Management reporting the November ISM Manufacturing PMI improved, registering 48.4%, up 1.9 points from October’s 46.5%. Despite remaining in contraction, this signals a slower rate of decline. The New Orders Index returned to expansion at 50.4%, marking its first positive reading after seven months of contraction. Production (46.8%) and Employment (48.1%) indices also improved but remained below the 50% growth threshold. Prices dropped to 50.3%, indicating weaker price increases, while the Backlog of Orders Index fell further into contraction at 41.8%. Supplier deliveries accelerated (48.7%), signaling improved supply chain performance, while inventories rose to 48.1%. Export demand improved slightly, with the New Export Orders Index rising to 48.7%, though still in contraction. Imports declined further to 47.6%. Foundational industries, including Chemical Products and Fabricated Metal Products, continued to struggle, reflecting broader sector challenges and a recovery likely two to three months away. In November, 66% of the manufacturing sector contracted, compared to 63% in October. Weak demand persists, but signs of stabilization include improved delivery times and rising inventories. Among major industries, Food, Beverage & Tobacco Products, and Computer & Electronic Products expanded. However, 11 industries, including Transportation Equipment and Machinery, reported contraction. As companies plan for 2025, manufacturing faces subdued demand with sluggish production and ongoing supplier capacity improvements.¹ 

US job openings rose to 7.74 million in October, up from 7.37 million in September, indicating labor market stabilization after a soft period last summer, according to the Labor Department. The increase was driven by new openings in professional services, hotels, and restaurants, while government listings declined. The number of workers quitting jobs climbed by 200,000 to 3.3 million, the highest level since May, with many in hospitality likely transitioning to similar roles within the industry. Layoffs remained near record lows, reflecting continued labor market strength. Despite declining job openings from the 2022 peak of 12 million, current levels remain above pre-pandemic norms. The low unemployment rate and steady job creation suggest businesses are keeping pace with labor force growth. High quit rates further signal worker confidence in securing new opportunities. Overall, the report highlights a resilient labor market with no significant economic concerns on the horizon. Job mobility and sustained openings indicate ongoing recovery and stability.² 

According to payroll firm ADP, US businesses added 146,000 jobs in November, signaling a stabilized labor market after a summer slowdown. The latest number fell slightly below economists’ expectations of 163,000 new jobs, as a Wall Street Journal survey forecasted. The Federal Reserve began cutting interest rates earlier this year, concerned about labor market weakness. However, recent employment data suggests those worries are easing, allowing the Fed to take a measured approach to further rate cuts amid lingering inflation. ADP revised its October job creation estimate down from 233,000 to 184,000. In November, job growth was led by health care, transportation, construction, and education sectors, with nearly half of the hiring occurring in the South, primarily at large companies. Economists estimate 100,000 to 150,000 new jobs per month are needed to keep pace with labor force growth, though recent immigration trends may raise that threshold. While ADP’s figures don’t always align with the government’s official jobs report, both generally trend in the same direction. The government is expected to report a rebound to 213,000 new jobs in November, up from just 12,000 in October, according to a Wall Street Journal poll. Job creation has been steady rather than explosive, and layoffs remain low. The unemployment rate remains historically low at 4.1%. Whether hiring accelerates in 2025 will depend on Federal Reserve rate cuts and the economic policies of the incoming Trump administration. “Overall growth was healthy, but industry performance varied,” said ADP chief economist Nela Richardson.³ 

On Wednesday, the Institute for Supply Management reported that economic activity in the services sector grew for the fifth consecutive month in November, with the Services PMI at 52.1%, though down 3.9 points from October’s 56%. This marked the ninth month of expansion in 2024 and the 51st out of 54 months since the recovery began in June 2020. Subindexes reflected slower but sustained growth: the Business Activity Index (53.7%) and New Orders Index (53.7%) both declined compared to October but remained in expansion. The Employment Index (51.5%) also dropped but stayed above the growth threshold for the fourth time in five months. Supplier delivery performance improved as the Supplier Deliveries Index fell to 49.5% (down 6.9 points), indicating faster deliveries. Prices rose slightly, with the Prices Index at 58.2%, up 0.1 points from October. Inventories contracted, with the Inventories Index dropping sharply to 45.9%, while the Inventory Sentiment Index rose to 54.6%. The Backlog of Orders Index stayed in contraction for the fourth month, at 47.1%. Fourteen industries reported growth, unchanged from October. Despite declines in key subindexes, the services sector showed signs of sustained recovery, with broad-based industry expansion and positive sentiment among respondents. Seasonal factors, election-related concerns, and tariffs were highlighted as influencing factors, with outlooks ranging from neutral to cautious. The Services PMI’s average for 2024 remains slightly higher than November’s reading, suggesting consistent but moderated growth in the sector.⁴ 

The US economy grew steadily in November, though hiring remained subdued, and inflation persisted as a challenge in certain areas, according to the Federal Reserve’s Beige Book covering late October to late November. Businesses expressed optimism about future demand, but hiring activity was limited, with low worker turnover and few firms expanding their workforce. Layoffs remained minimal, and wage growth slowed, reducing its role as a driver of inflation. While material prices rose modestly, businesses reported difficulties passing increased costs to consumers, leading to shrinking profit margins. Some expressed concerns that tariffs proposed by President-elect Trump could further elevate inflation risks. Consumers showed resistance to price hikes, prompting companies to absorb more costs. Despite these challenges, businesses remained generally positive heading into the new year. Fed Chair Jerome Powell reinforced this sentiment, describing the economy as in “very good shape” during a New York event. However, profit pressures and tariff uncertainties continued to weigh on business outlooks.⁵ 

On Thursday, the US Department of Labor reported for the week ending November 30, seasonally adjusted initial jobless claims rose to 224,000, up 9,000 from the previous week’s revised figure of 215,000. The prior week’s number had been adjusted upward by 2,000. The four-week moving average increased slightly to 218,250, reflecting a 750-claim rise from the revised average of 217,500. Continuing claims for unemployment benefits across all programs totaled 1,751,411 for the week ending November 16, an increase of 63,408 from the previous week. By comparison, 1,579,177 claims were filed during the same week in 2023, indicating a year-over-year rise in benefit claims.⁶ 

The economy added 227,000 jobs in November, a seemingly solid figure, though much of the increase was driven by temporary factors rather than a significant rebound in the labor market. This followed a weak gain of just 36,000 jobs in October, impacted by a Boeing strike and two major hurricanes. Over the past two months, the average job growth of 132,000 more accurately reflects the current labor market conditions, which remain soft. While job creation is sufficient to keep unemployment low, it is far weaker compared to the robust growth in recent years. The unemployment rate increased slightly to 4.2% in November, from 4.1% the prior month, but remains historically low. The November jobs report is expected to support the Federal Reserve’s anticipated decision to cut interest rates at its meeting in two weeks. Investors anticipate this will mark the third rate reduction in four months as the Fed aims to sustain economic growth. Economists had forecast 214,000 new jobs for November, slightly stronger than expected. Despite the moderation in labor market strength, the overall outlook remains positive.⁷ 

1. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/november/ 
2. https://www.bls.gov/news.release/pdf/jolts.pdf 
3. https://adp-ri-nrip-static.adp.com/artifacts/us_ner/20241204/ADP_NATIONAL_EMPLOYMENT_REPORT_Press_Release_2024_11%20FINAL.pdf?_ga=2.29972223.1933253523.1733318081-1500461244.1732224236 
4. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/november/ 
5. https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20241204.pdf 
6. https://www.dol.gov/ui/data.pdf 
7. https://www.bls.gov/news.release/empsit.nr0.htm 

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).

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