To my clients:
Announcement: I will be on holiday from business close on Friday, December 19th through Sunday, January 4th, and back in the office on Monday January 5th. I’ll be connected while away, although checking markets and communications much less frequently than usual.
It was a mixed week for North American stock markets with the Canadian TSX finishing down 0.2%; the U.S. Dow Jones Index up 0.5%; and the U.S. S&P 500 up 0.3%.
Though the first week of a new month, the recent U.S. government shutdown has resulted in delays o key economic releases, including the November Employment Report which is now scheduled for release on Tuesday, December 16th. However, the ISM Manufacturing and Non-Manufacturing (i.e Services) reports were released per their normal timeline and, collectively, these reveal conditions similar to what has prevailed the past handful of years: with a reading of 48.2, a manufacturing sector that continues to contract and, with a reading of 52.6, a services sector that continues to expand. Given that the services sector is more than twice as large as the manufacturing sector, the takeaway is that the broader economy likely remains in expansion.
Returning to employment, quite frankly the labor market is hard to interpret. While the official government data will not be released until the 16th, the private sector ADP Employment report (which historically has not been a particularly reliable indicator of what the official government data will reveal) showed a loss of 32,000 jobs in November. While concerning, it’s interesting to note that weekly jobless claims conversely reached a 3-year low of 192,000 (remember that hirings and firings are always occurring simultaneously in the economy… the monthly employment reports net out the effects of these two competing forces while the weekly jobless claims solely tabulates the layoffs). In other words, while hiring seems to have stalled, so too have firings. It appears that a low-hire/low-fire labor market currently prevails. The additional clarity offered by the official government data in 1.5 weeks will be important to assess.
Meanwhile, the Federal Reserve’s preferred measure of inflation – the PCE Price Index – was released this morning and showed slightly improved inflation at ~ 2.8%. To be sure, this level remains above the Fed’s 2.8% target, but its not particularly egregious and it ticked in the right direction. The inflation release likely cements the view that the Fed will cut rates by 0.25% at next week’s meeting.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
2950 Glen Drive, 7th Floor │ Coquitlam, BC │ V3B 0J1
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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