Author丨Contributing writer Wang Yinggui.
Editor丨Li Yingliang.
On Friday, the U.S. Department of Labor released employment for November, adding 19 jobs90,000, higher than the expected 180,000, and the unemployment rate rose from 3 in October9% to 37%, and hourly earnings increased by 40%, and the employment participation rate rose slightly to 628%。Overall, the jobs report was in line with market expectations for a soft landing for the economy. On the same day, the US S&P 500 index rose 1878 points, i.e. 041%；The Dow Jones 30 Industrial ** Average rose 13049 points, which is 036%；The Nasdaq rose 6398 points, i.e. 045%。The U.S. dollar index closed at 103965 points, an increase of 045%, and the 10-year Treasury yield closed at 4229%, up 197%。
Recently, the market has been in a contradiction between ideals and reality. On the one hand, the market thinking has suddenly shifted from the Fed will keep interest rates higher for a longer period of time to the Fed's rapid and deep interest rate cuts next year. On the other hand, the market must face the grim reality that the Fed's high interest rate policy may last longer than expected. Even if core inflation falls to the policy target of 2%, real long-term interest rates (the difference between nominal interest rates and inflation) are likely to be much higher than the current 05%, taking into account the general price level situation, it is also normal for the real interest rate to be 2%.
In any case, despite the doubts about the Fed's ability and credibility to manage inflation, investors are still mindful of the market motto: don't go against the central bank.
The U.S. job market has cooled, and wage pressures remain
In recent months, the number of new jobs in the United States has returned to the normal level of the pandemic. From 2015 to 2019, the monthly average of new jobs in the United States was 190,000, and the average from June to November this year was 1860,000. During the pandemic, a large number of employees who were close to retirement chose to retire directly, while those who were still working after retirement chose to return to retirement, which led to a shortage of manpower in many positions, and companies had to attract new employees with higher hourly wages.
Figure 1 New jobs in the United States from January 2021 to November 2023 (unit: 1,000 people).
Source**: U.S. Department of Labor.
Although job creation was concentrated in the services and ** sectors, layoffs in other sectors slowed, and the November jobs report was generally positive. As ever, the service sector increased by 1210,000 jobs, an increase of 490,000 jobs, including 9 new jobs in the education and health sectors90,000, contributing the most to the employment situation in the United States. 280,000, the information industry uncharacteristically increased by 10,000 jobs, and the accommodation and catering industry increased by 3940,000 people, while the retail industry laid off 3840,000 people, including 9,000 layoffs in professional and commercial services. Overall, the supply and demand in the job market tend to be balanced.
However, the expectations of financial markets have changed completely faster than reality, driving the market for six consecutive weeks. Six weeks ago, the market was convinced that the Fed would maintain higher interest rates in 2024 and began to lower interest rates in May, cutting rates at least twice. At present, the market expects the Fed to cut interest rates five times in the coming year, while the Fed decision committee only cut rates once in September this year. The November jobs report poured cold water on investors, with the vast majority believing that there will be a rate cut in May next year, and the odds of a rate cut in March are five to five. Judging from the Fed's statement, the probability of raising interest rates this week is less than 5%, but this does not mean that inflation is no longer the focus of policymakers. On the contrary, inflation fell markedly, but core inflation changed less, still high at 35%。
The recent changes in inflation have indeed relieved the market and the Fed, but the current inflation level is still above the policy target, and the process of inflation decline has been repeated, and the Fed does not dare to declare that it has won the battle against inflation, because the inflationary pressure caused by wage costs is difficult to eliminate in the short term. At present, the US economy is growing relatively strongly, employment, consumption and investment are strong, and the source of inflation still exists. It is expected that at this week's regular interest rate meeting, the Fed's policy statement will have little new meaning, and the future economy will tend to be conservative, and there will be no mention of the word "interest rate cut".
A soft landing for the economy is gradually becoming clear, and interest rate cuts may start in June next year
Economic growth is the last word and the fundamental basis for all policy decisions. Due to the lack of stability in net exports and the limited role of consumption and investment, the two most important troikas of the U.S. economy are personal consumption and corporate investment, and personal consumption is the main driving force of U.S. economic growth. In the third quarter of this year, the U.S. economy grew by 52%, of which personal consumption contributed 4692 per cent, with private sector investment accounting for 35 per cent. An individual's spending power depends on disposable income and the level of savings. Although wages in the United States are growing slightly faster than inflation, prices have weakened the purchasing power of individuals across the board, and the impact on the future economy cannot be underestimated.
As shown in Figure 2, at the end of the third quarter of 2019, personal bank deposits in the United States were $980.3 billion, and during the epidemic, various subsidies and wage growth caused personal deposits to skyrocket, and personal deposits in the third quarter of 2022 were 4480,000 (all-time high), with deposits of 3 at the end of the third quarter of this year$89 trillion. Economic growth is driven by personal consumption, but personal savings are declining rapidly, and various expenses (such as mortgage loans, car loans, etc.) have doubled compared to before, and consumers must rethink their spending priorities to leave room for the future. This year's Christmas consumption may be the best test of consumers' shopping enthusiasm.
Similarly, investment spending determines the resilience of U.S. economic growth. According to the Industry and Financial Markets Association (SIFMA), from January to November this year, the total financing of U.S. companies was $129.5 billion, slightly higher than the $93.1 billion in the same period last year, and the overall level was lower than the normal level before the epidemicThe amount of financing in the bond market was 7$8.5 billion, down from $8.5 billion in the same period last yearUS$5.3 billion, of which 1$41 trillion, up from $1 in the same period$36 trillion. The U.S.** market is still recovering, while the bond market is performing more normally.
Figure 2 Trend of U.S. personal deposits in Q3 from 2019 to 2023 (unit: million US dollars).
Source**: Bureau of Economic Analysis (BEA), U.S. Department of Commerce
Private consumption and private sector investment are in the spotlight. As the market consensus, economic growth will certainly slow in the fourth quarter of this year, but a recession seems to be getting more and more remote. The Fed is now in a relatively relaxed moment, but it must not let its guard down on inflation. Even if there are difficulties in the growth of the US economy, the Fed will not cut interest rates lightly or rashly, but will wait for a period of time before making a decision to avoid a repeat of the mistakes of 2021.
Next year is the first year, and Biden needs a beautiful economic growth report card, but this is the result that the Republican candidate does not want to see. Even if there is a mild recession in the US economy in the first half of next year, the Fed will likely decide to cut interest rates at its June and July meetings, and then enter a quiet period to maintain political neutrality: neither to help the incumbent or offend the Republican candidate. The Fed's vaunted independence has long been politically compromised, and if Powell wants to remain chairman of the Fed, he must be nominated by either a Democratic or a Republican.
In the near term, the job market, inflation and economic growth are still key issues for the market, and in what form will the lag effect of successive interest rate hikes appear?The Fed's interest rate hike has already ended in September this year, and the rate hike is not on the FOMC's agenda next year.
Unless the unexpected happens, inflation will be slow** and the interest rate market is gradually adapting to the new normal with higher interest rates, so the Fed will not rush to break the existing pattern, nor will it openly discuss interest rate cuts, and the federal ** interest rate will remain unchanged in the first half of next year, but the interest rate yield curve will return to normal. The 10-year interest rate will continue, the U.S. market will adjust accordingly, the bond issuance market will continue to return to normal, and the dollar exchange rate will continue to weaken. In short, the economy will return to the growth track of about 2% in the fourth quarter, and there will be some difficulties in economic growth in the first quarter of next year, but the Fed is not expected to cut interest rates.
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Editor of this issue: Jiang Peipei, Xi, Tan Yahan.
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