Key Labor Market Data Floods This Week

As we enter this first full trading week of the new year, pre-market futures are showing positive movement this morning. Following a strong trading session on Friday that saw both the Dow and Nasdaq both rise by over +300 points, the Dow has added an additional +185 points, the Nasdaq is up +220, and the S&P 500 has increased by +45 points.

The market faced its lows at the start of January, but there is a more optimistic sentiment currently, influenced by the upcoming transition to a new administration. The prospect of deregulation, a supportive approach to cryptocurrency, and potential tax cuts for higher-income earners are all viewed positively for sustaining a robust market.

However, the S&P 500 has experienced an impressive +20% increase for two consecutive years. Such a streak hasn't been observed for almost three decades—last seen during the late '90s Internet boom, particularly in 1999 where the S&P rose by +19.5%. While the market remains optimistic for another strong year in 2025, the cyclical nature of markets indicates that corrections are inevitable.

Anticipated Data This Trading Day

As the market opens, two essential economic reports will be released. While they're not expected to have as significant an impact as the Employment Situation report from last Friday, they will be closely watched for insights on the current economic narrative.

S&P final Services PMI for December is expected to come out today. Last month's report indicated a significant rise to 58.5, the highest since October 2021. This figure lies well above the 50 line that separates growth from contraction, suggesting that the Services sector continues to thrive, even amid some concerns regarding overall employment trends in recent months.

Factory Orders for November, on the other hand, paint a different picture of the U.S. economy, with expectations for a decline of -0.3% for the report being released today, compared to a +0.2% increase from the previous month. This reinforces a broader trend observed in other economic indicators that point to a weakening manufacturing sector, although initiatives like the Chips Act could help stimulate growth in that area in the long run.

Focus on Employment This Week

The start of the week marks the beginning of Jobs Week, commencing with the November Job Openings and Labor Turnover Survey (JOLTS) report due out after tomorrow's opening bell. This will be followed by the release of private-sector payrolls for December from ADP on Wednesday morning. Additionally, the customary Weekly Jobless Claims data will be made available on Thursday prior to market opening, and the week's highlight will be Friday's non-farm payrolls and household survey data.

The anticipated Employment Report is projected to reveal an increase of +155,000 jobs for last month, which is a decrease compared to the +227,000 jobs reported for November, but it aligns with the average job creation seen in the past four months. The latest months have seen notable fluctuations: +227,000 in November, +36,000 in October, +255,000 in September, and +78,000 in August. The seasonal effects of holiday hiring are expected to prevent December's numbers from dropping significantly, but a wait-and-see approach is in order.

It's also essential to consider the Federal Reserve's dual mandate of controlling inflation and promoting full employment. If there is a continued decline in job growth and an increase in unemployment rates, the Fed may decide to implement more interest rate cuts throughout the year.

The days of April 2023's +3.4% unemployment rate are behind us, with the historical norm hovering around +5%. Thus, a substantial shift in the job market would be required to prompt a major reevaluation by the Fed.

economy, jobs, market