U.S. Economics – Labor Market

Labor Market

The Signals:

• Corporate Profits, Retail Market Signals, & Claims (Chart 1)
  • • Corporate Profits
      • Non-Financial Domestic Corporate Profits before Tax without Inventory Valuation and Capital Consumption Adjustments reached another all-time high of 2.89 trillion in 3Q24.
      • The y/y growth rate is at 9.3%, well above the 2015-2019 average of -2.0%.
    • Retail Credit
      • The ICE BofAML U.S. Retail Index options adjusted spread is 58 basis points wide, 72 basis points lower than its September 2022 cycle high, and below its historical average of 124 basis points.
    • Retail Equity
      • The SPDR S&P Retail ETF is up 5.9% over the last three months and up 41.2% since its cycle low made in September 2022.
      • While it has underperformed the S&P 500 Index since its cycle low, the price has not been moving in a direction that would raise concerns related to the consumer backdrop.
    • Continuing Claims
      • For the second week of January, continuing jobless claims increased by 46,000 to 1.899 million, the largest w/w increase since last January and its highest level since November 2021.
      • Directionally, this measure started to move higher toward the end of 2022, but its w/w pace has mostly leveled off since the end of 2023, reflecting the incremental increase in difficulty of obtaining a new job after losing a job.
      • While the rate of change is important, it is critical to highlight the multi-decade low base from which continuing claims have risen.
    • Initial Jobless Claims
      • In the third week of January, initial jobless claims increased by 6,000 to 223,000, roughly 14% lower than the 2024 high of 260,000.
      • Like continuing claims, initial claims remain historically low.

The Takeaway:

• Corporate profitability has continued to grow y/y at above average rates and consumer-oriented market signals are trending in a positive direction, pointing toward an improving economic environment, thus reducing the likelihood of mass layoffs.
• If the economy continues to improve and sizeable layoffs are avoided, the justification for FOMC rate cuts will likely trend downward.

Visuals:

(Chart 1)

Source: Macrobond

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.