Ebenezer Powell
Labor demand weakening, the ghost of Arthur Burns, capex vs. inventory destocking, party like its 1995
Shorter than usual note this week, we had a fairly large Thanksgiving gathering, and the World Cup has been all consuming. Tuesday, following a strong performance against a quality English national team, the Great Satan, as our opponent’s statist leaders refer to us, has our destiny in our hands, win and advance. We were in the Stade Gerland in Lyon for US/Iran in the ‘98 Coupe du Monde during our worst World Cup performance. Make no mistake, this young US team is the most talented of any of our sides since the 1990 qualification. Do they have the determination of our teams that advanced? We are about to find out Tuesday at 2pm eastern, thankfully Chairman Powell’s speech is Wednesday.
Next week’s report will begin our three note outlook series, beginning with our 2023 perspective, followed by secular macro trends and finally our year in review.
The Mandate Weight Shift
Seasonality, additional evidence of labor market softening that could turn a slowdown in the pace of rate hikes into a pause in 1Q23 and confirmation that while there were differing views within the FOMC on how far they needed to hike rates to reach a sufficiently restrictive level, there was broad agreement that the pace of hikes needed to slow, led to a push above 4000 for the S&P 500 and below 3.75% for 10-year Treasuries. With the various sufficiently restrictive views on the FOMC, next week’s speech from Chairman Powell on Wednesday, and to a lesser extent, New York Fed President Williams’ speech to the NY Economics Club on Monday, should shed light on whether the Committee is data dependent or on autopilot to a 5% policy rate. Though the Committee has been singing from the same hymnal on the weighting between their dual mandate, we’ve observed inclusive employment creeping back into the list of risks cited in some speeches. Our expectation is that though the summary of economic projections in September forecast for the unemployment rate was an increase to 4.4% in 2023 and 2024, an increase to 4% is likely to trigger a push for a pause from the inclusive employment faction. Though we suspect most of the focus will be on Ebenezer Powell’s speech, labor market data will be front and center next week. We’ve been pointing to continuing claims as evidence of increasing labor slack due to a reduction in demand. In the week ended November 12, the establishment survey week for the November employment report due Friday, continuing claims totaled 1.551 million, the sixth consecutive increase from 1.346 million during the September survey week. Initial claims are on the rise as well; in the week ended November 19 there were 240,000, well above expectations of 225,000, and 50,000 above the September low.