17.12.25 - US economy - signs of fatigue

US economic data released do not show a picture of an economy running at full speed, more showing some signs of fatigue:

• US Nonfarm Payrolls:
  US job growth modestly beat expectations in November. Nonfarm payrolls rose by 64,000, above the 45,000 consensus forecast, but followed a sharp –105’000 decline in October.

• Unemployment Rate:
  The unemployment rate unexpectedly climbed to 4.6%, the highest level since September 2021, highlighting a continued deterioration in the labor market despite the headline payroll beat.

• Public Sector Distortion:
  October’s steep payroll decline was largely driven by a plunge in federal employment, as workers who accepted deferred resignation offers under the Trump administration officially dropped off payrolls.

• Consumption Signals:
  A separate report showed US retail sales were broadly flat in October, with weaker auto sales and lower gasoline receipts offsetting gains elsewhere.

• Business Activity & Inflation Pressure:
  According to S&P Global, US business activity in December expanded at its slowest pace in six months, while input prices jumped to the highest level in over three years, signaling renewed cost pressures.

Markets: no big market reaction

• Equities: slightly lower

• Bonds: yields remain in a slow upward trend

• Gold: up close to record highs - silver with new record level above USD 66/oz

• USD: losing ground

• Cryptos: sings of fatigue with Bitcoin remaining clearly below USD 90k

• Volatility: VIX sideways on lower levels

My View: This report reinforces a late-cycle labor market narrative rather than a healthy reacceleration. While payroll growth modestly exceeded expectations, the trend is clearly weakening, and the rise in unemployment to 4.6% is a meaningful signal that cracks are forming beneath the surface.

At the same time, inflation pressures are not disappearing, as shown by rising input costs. This combination, slowing growth with sticky inflation, leaves the Federal Reserve in a difficult position and increases the risk of policy missteps.
Odds of a Fed rate cut next month didn’t change following the latest jobs figures. Fed funds futures traders are currently pricing in a 24% chance of a rate cut next month, the same as the day before.

In short, headline data may look “better than expected,” but the underlying picture continues to slowly darken. The labor market is no longer a reliable pillar of strength. Markets will increasingly have to price that in.

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