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Neither interest rates, the economic slowdown, nor even the introduction of AI have caused the labour market to collapse. It continues to improve like there is no tomorrow.
Who is responsible for such resilience?
The unexpected drop in the US unemployment rate to 3.7% in November, down from 3.9% in October, is not so much due to an increase in job openings as to the re-employment of some 40,000 workers.
For those who have forgotten, the automotive and interpreting sectors were on strike in October but did not return to work until November. It would, therefore, be inaccurate to say that all is well.
The economy added 35,000 fewer jobs in September than estimated, and November’s employment gain was lower than last year’s monthly average of 240,000.
So, in reality, the labour market is cooling down.
But will this prevent the Fed from cutting interest rates in March?
Investors are preparing for the most optimistic scenario, with the S&P 500 making new highs for the year. Perhaps this is because inflation continues to fall. Recall that in October, US producer prices fell by 0.5% (m/m), while retail sales declined by 0.1% (m/m).
If OPEC+ continues to fail to push oil prices back above the $80 barrier, the disinflationary trend will persist, supporting an earlier-than-expected change in monetary policy.
What does the coming week hold?
First and foremost, geopolitics, as the possibility grows that the war will spill over into Hezbollah territory in the Middle East.
Venezuela plans to move in and annex its neighbour’s territory in Latin America. If the worst-case scenario becomes reality, we cannot rule out the possibility of encountering new logistical problems, including maritime logistics, which will ultimately push up prices.
On the monetary policy front, fed funds futures currently show a 99% probability that the Fed will leave rates unchanged at Wednesday’s meeting.
In Europe, the Bank of England is expected to keep rates unchanged, and the ECB has recently entered pause mode while markets have removed any expectation of another hike.
