There are a number of key data points coming out of the US this week, including GDP, ISM, and NFP, following a relatively quiet holiday period last week. According to Goldman’s Isabella Rosenberg notes, the market will be focused on the upside risks to Fed policy from any stronger-than-expected economic data this week, while on the labor market, the focus is slightly different. The key question will be whether the gradual deceleration in US job growth can continue or whether this week’s payrolls data will show a sharper decline than anticipated. One of the key arguments for a “soft landing” that economists have been making is that a gradual rebalancing in the labor market is possible and that, coupled with an extended period of below potential growth can cool inflation; in other words, a fast and sharp increase in unemployment is not necessary or inevitable for slower underlying inflation (needless to say this is not a consensus view).
Chair Powell is also likely to address this debate in a speech on the “Economic Outlook and the Labor Market” on Wednesday, 11/30. Any additional color on how the FOMC is thinking about its task to deliver a soft-landing will be critical for the outlook. Separately, the speech also gives Chair Powell an opportunity to comment, either in favor of or against, on the latest easing in financial conditions after the latest CPI print.
Taking a more detailed look at the coming week, DB’s Jim Reid notes that it’s a big few days for US employment data, building to a crescendo with payrolls on Friday. We’ll also get the latest PCE inflation reading and the ISM manufacturing print.
Elsewhere, European CPI releases will also be front and center as inflation and recession risks in the currency bloc weigh on the ECB. In Asia, all eyes will be on China’s PMIs and several key economic activity indicators from Japan. We will also hear from a number of key central bank officials, including Fed Chair Powell and ECB President Lagarde.
Going through the highlights in more detail and there’s only one place to start, and that is with payrolls. This will be the last one before the FOMC on December 13-14th. DB economists expect a +200k print in November, down from +261k in October, and the unemployment rate to tick back down to 3.6%. Earnings are forecast to grow +0.3%, decelerating from October’s +0.4%.
Prior to Friday we have the latest JOLTS report and ADP reports on Wednesday. In terms of the former, it’s long been the Fed’s favoured measure of labour market tightness but it’s always a month behind other measures so as we approach a turning point in the labour market it might be tough to use it as a lead indicator. Economists are focused on the micro of the report and recent evidence of less labour market tightness has been a little less evident under the surface given various sector mismatches.
Rounding off the important labor market clues, tomorrow’s Conference Board’s confidence measure on Tuesday will include the jobs-plentiful / jobs hard-to-get differential, which has historically been highly correlated with the unemployment rate. DB economists highlight that after peaking at 47.1 in March, consumer views on the labour market have cooled a bit with the differential falling to 32.5 in October. While the October level is still very healthy and in line with the near-recordlow unemployment rate, we need to see how quickly this now deteriorates for clues on the turn in the labor market.
Within Thursday’s personal income (consensus at +0.4% vs. +0.4% last month) and consumption (consensus at +0.8% vs. +0.6%) report the latest reading on the core PCE deflator will be a big release for Fed expectations. Given what we know from the CPI and PPI data earlier this month, our economists expect core PCE inflation to come in at 0.2% (vs. 0.5% previously). If their forecast is correct, the year-over-year rate will begin to fall, dropping a tenth to 5.0%. While only a small decrease in the year-over-year rate’s September peak, this would be the fourth lowest monthly core PCE print since the beginning of 2021, so it may help cement 50bps over 75bps in two weeks’ time.
Business activity-related indicators due out include the manufacturing ISM index on Thursday. Economists expect the indicator to slip into contractionary territory (49.8 vs 50.2 in October) for the first time since the Covid depths in May 2020. The day before, we get the Chicago PMI (consensus forecast 47.0 vs 45.2 in October) and the advance goods trade balance (forecast -$90.4bn vs -$92.2bn in September).
In Europe, the November CPI reports from across the Eurozone will be among the key data this week. As a reminder, the bloc-wide measure is now at 10.6%, the highest ever, in a sharp contrast to the US where the latest CPI (7.7%) is more than a percentage point below its recent peak (9.1%). With few indicators pointing to a significant slowdown in price increases for Europe, this week’s print may keep up the pressure on the ECB to fight inflation despite growth concerns. In fact, as DB’s European economists point out in their review of central bank’s monetary policy accounts released this week, contrary to markets’ initial perception, there was little dovishness in last meeting’s message. The team is calling for a +50bps hike in December but acknowledging upside risks, especially if this week’s prints come in above expectations.
We will also get the PPI and consumer spending for France, the PPI and the manufacturing PMI from Italy, as well as confidence indicators for the Eurozone throughout the week.
Over in Asia, all eyes will be on November PMIs from China on Wednesday and Thursday, with the Bloomberg consensus pointing to an unchanged manufacturing PMI on Wednesday (49.2) and a slight drop in the Caixin PMI on Thursday (48.9 vs 49.2). See the day-by-day week ahead for the full diary of events this week.
Finally, turning to the US alone, Goldman writes that the key economic data releases this week are the JOLTS job openings on Wednesday, ISM manufacturing on Thursday, and the employment situation report on Friday. There are several speaking engagements from Fed officials this week, including remarks from Chair Powell; governors Bowman, Cook, and Barr; and presidents Williams, Bullard, Logan, and Evans.
Monday, November 28
- 10:30 AM Dallas Fed manufacturing index, November (consensus -22.0, last -19.4)
- 12:00 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will speak at a virtual event hosted by The Economic Club of New York. Speech text and Q&A with the moderator and audience are expected. Discussing financial stability on November 16, Williams said, “Using monetary policy to mitigate financial stability vulnerabilities can lead to unfavorable outcomes for the economy. Monetary policy should not try to be a jack of all trades and a master of none…The time is now to find solutions that strengthen our financial system without compromising our monetary policy goals. These issues are complex, but the need for meaningful progress on strengthening the resilience of core financial markets is clear.” He added, “Restoring price stability is of paramount importance because it is the foundation of sustained economic and financial stability. Price stability is not an either/or, it’s a must-have.”
- 12:00 PM St. Louis Fed President Bullard (FOMC voter) speaks: St. Louis Fed President James Bullard will participate in an interview with MarketWatch. On November 17, Bullard said, “In the past I have said 4.75% to 5%. Based on this analysis today, I would say 5% to 5.25%. That’s a minimum level…that would at least get us in the zone.” Bullard’s presentation earlier that day said, “…the policy rate is not yet in a zone that may be considered sufficiently restrictive. To attain a sufficiently restrictive level, the policy rate will need to be increased further…caution is warranted…as both markets and the FOMC’s SEP forecasts have been predicting declining inflation just around the corner for the past 18 months.”
Tuesday, November 29
- 09:00 AM FHFA house price index, September (consensus -1.3%, last -0.7%)
- 09:00 AM S&P/Case-Shiller 20-city home price index, September (GS -1.2%, consensus -1.15%, last -1.32%): We estimate that the S&P/Case-Shiller 20-city home price index declined 1.2% in September, following a 1.32% decline in August.
- 10:00 AM Conference Board consumer confidence, November (GS 101.0, consensus 99.9, last 102.5): We estimate that the Conference Board consumer confidence index decreased to 101.0 in November.
Wednesday, November 30
- 08:15 AM ADP employment report, November (GS +175k, consensus +200k, last +239k): We estimate a 175k rise in ADP payroll employment in November.
- 08:30 AM GDP, Q3 second release (GS +3.0%, consensus +2.8%, last +2.6%); Personal consumption, Q3 second release (GS +1.6%, consensus +1.5%, last +1.4%): We estimate a four-tenths upward revision to Q3 GDP growth to +3.0% (qoq ar), reflecting upward revisions to business fixed investment and consumption partially offset by downward revisions to inventories.
- 08:30 AM Advance goods trade balance, October (GS -$92.0bn, consensus -$90.4bn, last -$92.2bn): We estimate that the goods trade deficit narrowed slightly to $92.0bn in October compared to the final September report.
- 08:30 AM Wholesale inventories, October preliminary (consensus +0.5%, last +0.6%)
- 08:50 AM Fed Governor Bowman speaks: Fed Governor Michelle Bowman will discuss the future of small banks. Q&A with audience is expected. On October 12th, Governor Bowman said, “if we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table,” but that “if inflation starts to decline…a slower pace of rate increases would be appropriate.”
- 09:45 AM Chicago PMI, November (GS 46.7, consensus 47.0, last 45.2): We estimate that the Chicago PMI rebounded 1.5pt to 46.7 in November, as the Chicago PMI has overshot to the downside relative to other business surveys (GS manufacturing survey tracker -0.2pt to 48.3 in November).
- 10:00 AM Pending home sales, October (GS -6.5%, consensus -5.0%, last -10.2%): We estimate pending home sales declined 6.5% in October, following a 10.2% decline in September.
- 10:00 AM JOLTS job openings, October (GS 10,200k, consensus 10,350k, last 10,717k): We estimate that JOLTS job openings declined to 10,200k in October.
- 12:35 PM Fed Governor Cook speaks: Fed Governor Lisa Cook will discuss the economic outlook and monetary policy at an event hosted by the Detroit Economic Club. Speech text and Q&A with audience are expected. On November 15, Cook said inflation is “much too high” but that “monetary policy is, as we all know, a blunt instrument.” She added, “The focus…is on addressing inflation, and we want a sustainable, strong labor market.”
- 01:30 PM Fed Chair Powell speaks: Fed Chair Jerome Powell will discuss the economy and labor market at an event hosted by the Brookings Institution. Speech text and Q&A with audience are expected. The November FOMC minutes released last week noted that “a substantial majority” of FOMC participants agreed that a slower pace of hiking would “likely soon be appropriate.” Echoing the language in the post-meeting statement, FOMC participants argued that the level of the policy rate, the uncertain lags with which monetary policy affects activity, and the incoming data would all be important factors for the future path of monetary policy. In his last remarks on November 2, Powell hinted the FOMC will likely raise the funds rate to a higher peak than it previously projected and said that slowing the pace is not contingent on seeing softer inflation data, but rather is likely to be appropriate because the level of the funds rate is now much higher, the cumulative tightening to date is substantial, and the magnitude and timing of its impact on the economy are uncertain. Our baseline forecast calls for the Fed to deliver a 50bp rate hike in December, and a 25bp hike in February, March, and May for a peak rate of 5-5.25%.
- 02:00 PM Beige book: The Fed’s Beige Book is a summary of regional economic anecdotes from the 12 Federal Reserve districts. The October Beige Book noted that economic activity expanded modestly on net since the September report, but four districts noted flat activity and two cited declines, with slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions. While we do not expect a recession, we expect low growth and inflation to remain elevated over the next few months. We therefore look for anecdotes of slowing growth and continued price pressures in this month’s Beige Book.
Thursday, December 1
- 08:30 AM Personal income, October (GS +0.6%, consensus +0.4%, last +0.4%); Personal spending, October (GS +1.0%, consensus +0.8%, last +0.6%); PCE price index, October (GS +0.37%, consensus +0.4%, last +0.3%); PCE price index (yoy), October (GS +6.03%, consensus +6.0%, last +6.2%); Core PCE price index, October (GS +0.25%, consensus +0.3%, last +0.5%); Core PCE price index (yoy), October (GS +4.98%, consensus +5.0%, last +5.1%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.25% month-over-month in October, corresponding to a 4.98% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.37% in October, corresponding to a 6.03% increase from a year earlier. We expect that personal income increased by 0.6% and personal spending increased by 1.0% in October.
- 08:30 AM Initial jobless claims, week ended November 26 (GS 245k, consensus 231k, last 240k); Continuing jobless claims, week ended November 19 (consensus 1,570k, last 1,551k); We estimate initial jobless claims increased to 245k in the week ended November 26.
- 09:20 AM Dallas Fed President Logan (FOMC non-voter) speaks: Dallas Fed President Lorie Logan will speak at an event hosted by the Dallas Breakfast Group. The Dallas Fed advises Logan will not discuss monetary policy or the economy.
- 09:30 AM Fed Governor Bowman speaks: Fed Governor Michelle Bowman will speak at a virtual event hosted by the KBW CEO Strategy Forum. Q&A with a moderator is expected.
- 09:45 AM S&P Global US manufacturing PMI, November final (consensus 47.6, last 47.6)
- 10:00 AM Construction spending, October (GS -0.3%, consensus -0.3%, last +0.2%): We estimate construction spending decreased 0.3% in October.
- 10:00 AM ISM manufacturing index, November (GS 49.6, consensus 49.8, last 50.2): We estimate that the ISM manufacturing index declined by 0.6pt to 49.6 in November, reflecting weak industrial trends abroad and convergence towards other manufacturing surveys (GS manufacturing survey tracker -0.2pt to 48.3 in November).
- 03:00 PM Fed Vice Chair for Supervision Barr speaks: Fed Vice Chair for Supervision Michael Barr will deliver remarks on bank capital at an event hosted by the American Enterprise Institute. Speech text and Q&A with a moderator are expected. Discussing financial stability on November 15, Barr said, “We’re concerned about the risks that we don’t know about in the non-bank sector…That includes obviously crypto activity, but more broadly risks in parts of the financial system where we don’t have good visibility, we don’t have good transparency, we don’t have good data. That can create risks that blow back to the financial system that we do regulate.” He added, “I think…we are going to see significant softening in the economy…Inflation is far too high…I think we are going to see unemployment go up.”
- 05:00 PM Lightweight motor vehicle sales, November (GS 13.8mn, consensus 14.6mn, last 14.9mn)
Friday, December 2
- 08:30 AM Nonfarm payroll employment, November (GS +175k, consensus +200k, last +261k); Private payroll employment, November (GS +150k, consensus +190k, last +233k); Average hourly earnings (mom), November (GS +0.30%, consensus +0.3%, last +0.4%); Average hourly earnings (yoy), November (GS +4.6%, consensus +4.6%, last +4.7%); Unemployment rate, November (GS 3.7%, consensus 3.7%, last 3.7%); Labor force participation rate, November (GS 62.3%, consensus 62.3%, last 62.2%): We estimate nonfarm payrolls rose by 175k in November (mom sa), a slowdown from the +261k pace in October. Our forecast reflects continued declines in online job postings as well as weakness in Big Data employment indicators in November. Nonetheless, we believe layoff activity remains muted and that the recent increase in jobless claims mostly reflects seasonal distortions. We also expect another large rise in healthcare payrolls (we assume +75k mom sa), reflecting rising hospital utilization and record-high job openings in the sector. We estimate the unemployment rate was unchanged at 3.7%, reflecting a rise in household employment offset by slightly higher labor force participation (we assume +0.05pp to 62.3%). We estimate a 0.30% increase in average hourly earnings (mom sa), reflecting negative calendar effects (we assume a drag of 5bps).
- 10:15 AM Chicago Fed President Evans (FOMC non-voter) speaks: Chicago Fed President Charles Evans will speak at a conference on the role and effectiveness of financial regulation. The Chicago Fed advises Evans will not discuss the economic outlook or monetary policy.
- 02:00 PM Chicago Fed President Evans (FOMC non-voter) speaks: Chicago Fed President Charles Evans will speak at an event hosted by the Chicago Fed. He is not expected to discuss the economic outlook or monetary policy.
Source: DB, Goldman, BofA