The US labor market is powering ahead nicely reflecting the US’s booming economy. But at the same time, there are some contradictory messages. Short-cycle industrials such as UPS which is laying more than 10k people, are discounting some severe headwinds indicating that the job market may not reflect the full picture. And there is a bittersweet message to analysts and traders who expected the FED to start dropping interest rates any time soon in 2024.
In fact, the FED is pursuing its inflation combat policy to achieve a soft landing. The evolution of the US economy in 2023 has allowed US consumers to acquire a good level of confidence, enabling business growth and resulting in consumers going back to pre-covid status. On average, wage growth continues to outpace inflation, boosting workers’ spending power and willingness to engage in longer-term projects. In January, women have massively entered the workforce with average hourly earnings rising again, increasing 0.6% from December and 4.5% from a year ago.
With the presidential election due later in the year, these recent developments are largely positive for the Biden administration, which touted for quite some time the strength of the economy in co
nnection with victories on climate, infrastructure, and technology.
FED’s comments of this week suggest that investors should shift expectations for a rate cut from March to June, with some economists saying it’s better to be slower than faster. On the other hand, the FED has to avoid a potential conflict of interest! By shifting the rate cut decision too much into the future, the issue might become, a pre-dominant subject for the Presidential election and I am sure that no one wants this to happen.