- The ISM Manufacturing and Services indices registered sub-50% readings in December
- 223,000 jobs were added in the U.S. in December
- The current federal-funds target range is 4.25% to 4.50%, the highest since 2007
Top Three Market Headlines
Business Surveys Reflect Weaker Activity: A pair of closely-watched surveys of business executives released last week signaled weakening business conditions across the U.S. economy. The Institute for Supply Management (ISM) Manufacturing index registered 48.4% in December, a decrease from 49.0% the prior month. This was the second consecutive month the index pointed to contracting business activity (i.e., a sub-50% reading), after having previously reflected expansion for 39 straight months. The ISM Services index followed the same trend, dropping to 49.6% from 56.5% in November. This was the first sub-50% reading for the services index since May of 2020.
Slowdowns in Hiring and Wage Growth: The Labor Department reported last week that U.S. nonfarm payrolls rose in December by 223,000, down from a pace of 256,000 in November and the lowest monthly gain since December of 2020. Many of the employment gains over the last month occurred in the leisure & hospitality and health care industries. Wage pressures eased modestly, as average hourly earnings rose 0.3% from a month earlier and 4.6% on an annual basis, both down from the prior month. Meanwhile, the unemployment rate ticked down to 3.5% from 3.6% in November; this figure has hovered in a tight range of 3.5% to 3.7% since March of last year.
Fed Minutes Signal Higher Rates: Minutes released last week of the Federal Reserve's latest meeting in December indicated that the Fed intends to keep interest rates higher to fight inflation and does not anticipate cutting rates in 2023. At the meeting, Fed officials raised the target benchmark federal-funds rate by 50 basis points to a range of 4.25% to 4.5%, the highest since 2007. Minutes highlighted that the Fed is set on bringing inflation back down to 2% even if there needs to be softening in the job market and economic growth. Chairman Jerome Powell commented about the tight labor market and signaled that higher unemployment could be needed to bring back stability in prices.