Resilient US jobs market lifts market spirits

Resilient US Jobs Market Lifts Market Spirits

But while investors remain concerned about the potential for further escalation, the focus shifted back to economic fundamentals at the end of last week with further evidence that the US economy remains resilient.

Concerns over rising US unemployment have eased.

Investor worries over the jobless rate among investors peaked following the release of the July payroll data, which showed unemployment climbing from 4.1% in June to 4.3%. A year before, just 3.5% of Americans had been unemployed. This sparked anxious conversations about the Sahm rule, according to which the US would be headed for recession when the three-month average unemployment rate rose 0.5 percentage points or more from its low during the previous 12 months.

The September report has laid such concerns to rest for now. Unemployment fell to 4.1%, from 4.2% in August. The consensus forecast had been for the jobless rate to hold steady.

Continued job creation and solid wage growth should increase confidence over the outlook for consumer spending.

The resilience of US consumers has helped the US economy avoid recession. This resilience has been supported by growth in employment and wages. Both were stronger than expected in September.

The US generated a net 254,000 jobs over the month, well above the consensus forecast of 150,000 and the strongest monthly increase since January. Upward revisions added another 72,000 jobs to the prior two months. Average hourly earnings rose by 0.4% month over month, versus a consensus expectation for a 0.3% increase. The annual rate rose to 4%, from 3.8%.

Inflation is unlikely to stand in the way of Fed rate cuts to bolster US growth.

The latest personal consumption expenditure data, the central bank’s favorite measure of price pressures, showed annual inflation slowing to 2.2% in August, the lowest since February 2021. While the consumer price index (CPI) measure of inflation for the same month was less reassuring, this measure places a greater emphasis on owners’ equivalent rent, which has remained higher than expected despite evidence of more modest rises in rents. Data for September will be released this week.

With inflation slowing, we expect 50 basis points of Fed easing for the last two meetings of 2024 and a further 100 basis points of cuts in 2025. Although the pace of cuts could shift if progress on inflation stalls or the labor market remains strong, this is not our base case.

So, our view remains that the rally in the equity market remains well supported. After weakness earlier in the week, the S&P 500 gained 0.9% on Friday after the employment data, taking the index to its fourth consecutive weekly advance.

Our base case is that the combination of a soft economic landing and Fed rate cuts will help the index rise to around 5,900 by the end of the year and to 6,200 by the middle of next year, from 5,751 as of Friday’s close. As economic growth moderates, however, we expect the stocks of quality companies—those with robust balance sheets and solid earnings growth—to outperform. We have long been recommending investors to brace for further Fed rate cuts, shifting excess holdings in cash into more durable sources of income—including investment grade bonds and stocks with high and sustainable dividends.

Main contributors—Solita Marcelli, Mark Haefele, Brian Rose, Christopher Swann, Matthew Carter, Jon Gordon, Belinda Peeters

Original report— Resilient US jobs market lifts market spirits, 7 October 2024.

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

SDG 8: Decent Work and Economic Growth

The article discusses the US unemployment rate and its impact on the economy. It highlights the concerns and subsequent easing of worries over rising US unemployment. This connects to SDG 8, which aims to achieve full and productive employment and decent work for all.

SDG 12: Responsible Consumption and Production

The article mentions inflation and its impact on the Federal Reserve’s decision to cut interest rates. It discusses the personal consumption expenditure data and the consumer price index as measures of price pressures. This relates to SDG 12, which focuses on sustainable management and efficient use of natural resources.

2. What specific targets under those SDGs can be identified based on the article’s content?

Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value

The article addresses concerns about rising US unemployment and the impact on the economy. It discusses the jobless rate, job creation, and wage growth as indicators of progress towards achieving full and productive employment and decent work.

Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources

The article mentions inflation and its impact on the Federal Reserve’s decision to cut interest rates. It discusses the personal consumption expenditure data and the consumer price index as indicators of progress towards sustainable management and efficient use of natural resources.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions several indicators that can be used to measure progress towards the identified targets:

– Unemployment rate: The article discusses the US unemployment rate, which is a key indicator of progress towards achieving full and productive employment.
– Job creation: The article mentions the net job creation in the US, indicating progress towards creating more employment opportunities.
– Wage growth: The article highlights the increase in average hourly earnings, which is an indicator of progress towards decent work and equal pay.
– Inflation rate: The article discusses the personal consumption expenditure data and the consumer price index as measures of price pressures and progress towards sustainable management of natural resources.

These indicators provide quantitative data that can be used to track progress towards the identified targets.

4. Table: SDGs, Targets, and Indicators

Source: ubs.com