Fin-X rapid responce - December 17th

Delayed US labour figures and other data suggest that US growth remains concentrated in healthcare and data centre construction. There appears to be a broad-based slowing in activity, with rising risks that unemployment could accelerate higher next year.

• Delayed establishment survey data showed the economy adding +64k non-farm payrolls in November after losing -105k in October.

• There were -33k in prior two-month revisions.

• While the October and November reports combined showed a decline of -41k new jobs, there were +129k new jobs created in healthcare and social assistance. Construction also saw an increase largely due to non-residential hiring attributed to the AI boom, adding +27k, while transportation and warehousing shed -18k jobs.

• The BLS reported that, "Federal government employment continued to decrease in November (-6k). This follows a sharp decline of -162k in October, as some federal employees who accepted a deferred resignation offer came off federal payrolls. Federal government employment is down by -271k since reaching a peak in January." Temporarily furloughed employees were not counted as unemployed.

• The household survey was not collected during the shutdown in October. November data showed the unemployment rate rising to 4.6%, the highest level since September 2021 and up from 4.2% a year ago.

• The participation rate rose by +0.1% to 62.5%.

• Average hourly earnings slowed by more than expected from +3.7% to +3.5%, while average weekly hours ticked up by +0.1 to 34.3.

• Retail sales were flat in October and up +0.5% ex-autos and gas. The annual increase slowed from +4.2% to +3.5%.

• The S&P Global Flash PMI survey indicated that activity continued to slow into December, with the composite PMI reading of 53.0 representing a 6-month low.

• Chris Williamson, Chief Business Economist, said, "The flash PMI data for December suggest that the recent economic growth spurt is losing momentum. Although the survey data point to annualised GDP expansion of about 2.5% over the fourth quarter, growth has now slowed for two months. With new sales growth waning especially sharply in the lead up to the holiday season, economic activity may soften further as we head into 2026.

• "The signs of weakness are also broad-based, with a nearstalling of inflows of work into the vast services economy accompanied by the first fall in factory orders for a year. While manufacturers continue to report higher output, lower sales point to unsustainable production levels which will need to be lowered unless demand revives in the new year. Service providers reported one of the slowest months for sales growth since 2023."

• S&P500 6,800 -0.2%, Nasdaq Comp. 23,111 +0.2%, S&P/ASX200 future 8,581 (unch),

• US 2yr 3.49% -1bp, US 10yr 4.14% -3bps

• US dollar (DXY) index 98.2 -0.1%, AUDUSD 0.6632 -0.1%, Gold US$/oz 4,302 -0.1%

Fin-X Wealth View

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• The employment and activity data strongly suggest that the US economy continues to slow, save for some concentrated growth in healthcare and datacentres. 

• The short spurt that followed the delayed tariff implementation appears to have run its course. There is still no sign of any pick-up in activity as a result of the OBBBA fiscal package and the broad-based nature of the slowdown indicates further downside risks in 2026.

• Despite the softening, policy expectations have not materially changed. The Fed recently indicated that it expects to hold rates steady in January and cut maybe once next year, although the dispersion in expected rates is high. Market pricing suggests a roughly 20% chance of a cut in January, with a total of two -0.25% cuts over the year, with the Fed Funds rate remaining close to 3.0% until the end of 2027.

• One possible reason for relatively few cuts could be the shrinking of labour supply due to immigration policy changes. However, the number of unemployed workers is trending higher and appears to be accelerating, in line with the unemployment rate.

• A more plausible reason is that inflation risks are still seen as skewed to the upside, as Chair Powell commented. CPI figures due out tomorrow morning are expected to show the headline annual change at +3.1% and the core increase at +3.0% in November.

• However, we see the inflation risks as overdone due to falling house and oil prices and rising slack in the economy. Slowing growth appears to be dominating inflation as demand falls. We will continue to watch for positive fiscal effects from the OBBBA. But so far, the effects of the resumption of student loan repayments, rising healthcare and utility bills, and tighter credit are more visible. Smaller firms are being hit hardest, adding to the risks of higher unemployment in 2026.

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