A look forward at the January 6 week reveals a sparse data calendar heavy on reports associated with the labor market. Now that the major holidays are out of the way, there will be more appearances by Fed officials in the coming week and the one after before the communications blackout period around the January 28-29 FOMC meeting goes into effect at midnight on Saturday, January 18. Geopolitical developments in the Middle East may cloud the picture for Fed policymakers. However, depending on what happens next, the Fed’s basis message should still be one of wait-and-see while labor markets remain strong and inflation starts to edge up toward the 2% symmetric target. Vice Chair Richard Clarida’s speech on Thursday at 8:00 ET on the US economy and monetary policy should be a template for the outlook for the next meeting.
The Employment Situation for December at 8:30 ET on Friday is expected to be another month of solid increases for payrolls and an unchanged unemployment rate of 3.5%. The establishment survey should show hiring remained good for service providers, while the recession in the manufacturing sector and weakness in mining may drag down gains for goods producers. Still, the demand for new housing may keep construction payrolls up in December as that sector absorbs some of the workers laid off elsewhere. There should be decent increases for average hourly earnings. The household survey will get its annual revisions in the December numbers and will include seasonally adjusted data back five years. Revisions should not disguise that unemployment is running at 50-year lows and that workers on the margins are finding opportunities to join the labor force. If there is slack still to draw on for the vibrant job market, it will be among new workers entering the labor force, discouraged workers finding a reason to try again, those of limited skills getting a chance for training and experience, and retirees deciding to add to their incomes.
Before the BLS numbers are released, there are a number of other reports related to the labor market. The ADP National Employment Report for December at 8:15 ET on Wednesday will be read in light of its huge miss on the size of private payrolls in November. The ADP reported a gain of 67,000 in November that was strikingly at odds with the BLS report of an increase of 254,000. Some of this will be reconciled in revisions, but it emphasizes that the ADP number is not the same as that compiled by the government. Still, an indication that payrolls remain on the rise will be consistent with expectations that the labor market continues to add jobs even at this stage of the record-long expansion.
The Challenger report on layoff intentions in December at 7:30 ET on Thursday should confirm that the pace of layoffs is a little more elevated than it has been, but in the historical context the levels are fairly modest. There’s likely to be another – if smaller – wave of layoffs for retail in the works after the holiday shopping season has determined where the brick-and-mortar stores can survive. Manufacturing will likely see some downshift in payrolls as well while activity is slower. But overall, the usual year-end job cut plans could be relatively small as businesses hold on to workers with skills and experience.
The data on initial jobless claims for the week ended January 4 at 8:30 ET on Thursday is probably too soon to look for the normal crush of layoffs for temporary holiday workers. There were plenty of post-holiday promotions happening at retail outlets and transportation services were still delivering – and returning – items.
The ISM Non-Manufacturing Index is set for 10:00 ET on Tuesday – a day later than usual due to the timing of the holidays. Regional reports for service sector activity suggest that the national number will be one of continued modest expansion. Service businesses have enough commercial and government contracts on the books and demand from consumers that they haven’t experienced the same sort of slowdown that has affected manufacturing. Pricing and the impact from trade policy are concerns, but not to the extent that has hit the factory sector.
Ongoing weakness in orders for manufacturing will be evident in the November factory orders report at 10:00 ET on Tuesday. New orders for durable goods were already reported as down 2.0% for the month. The nondurables component may get a slight increase from petroleum.
The report includes the data on factory inventories for November which will help fill out the picture for the change in private inventories in the fourth quarter. The revised numbers on November wholesale inventories at 10:00 ET on Friday will feed into this as well. So far it is looking like there will be little positive contribution from inventories in the advance estimate of fourth quarter GDP at 8:30 ET on Thursday, January 30.
The November numbers on the international trade deficit at 8:30 ET on Tuesday will update the data on trade in goods and add in the that for services. So far the drag from net exports looks to be less in the fourth quarter. The Atlanta Fed’s GDPNow estimate is at 2.3% for the fourth quarter. The New York Fed’s NowCast for GDP is at 1.13%. More data should close the gap between the two.
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