Steady As She Goes

We wrote in our FOMC Briefing that policymakers are satisfied with the current positioning of monetary policy as well as their communication about how they’ll approach policy in the months ahead. Thus, they’ll want to avoid rocking the boat at this week’s FOMC meeting. 

The jobs report for November came out on Friday, after we had put out our Briefing, and represented a  substantial positive surprise. However, it shouldn’t complicate matters for the FOMC too much in terms of this week’s meeting. As we wrote on Friday, the FOMC has already communicated that it welcomes a tight labor market and that stronger-than-expected employment data alone will not push it toward considering raising rates. It shouldn’t be taken as a hawkish signal if, as we expect, the FOMC upgrades the description  of the pace of job gains in its post-meeting statement from “solid” to “strong.” The outlook continues to be characterized by muted inflation pressures and heightened uncertainty, and that’s not likely to change fundamentally for some time. We will, however, soon find out what is to happen with the additional tariffs on imports from China set to go into effect on December 15. 

Policymaker Remarks 

FOMC participants generally did not give public remarks last week because of the blackout period for communications ahead of this week’s meeting. An exception was Vice Chair for Supervision Quarles, who testified on banking regulation issues (12/4, 12/5). Of particular interest to us are his views on the role of  regulations in recent money-market stresses and policy proposals: “There were a complex set of factors that  contributed to those events in September” and “not all of them were related to our regulatory framework.”  As for supervisory solutions, he said: “We have identified some areas where our existing supervision of the  regulatory framework — less the calibration or structure of the framework itself — may have created some  incentives that were contributors.” However, in his view, these factors probably weren’t “decisive” in terms  of the monkey-market stress. He saw a need to reassess the framework, especially the internal stress tests,  which “can create a preference at some institutions for central bank reserve over other liquid assets including  Treasury securities for the satisfaction of their liquidity requirements.” 

Nowcasts (2019:Q4) 

Source Current One Week Ago Two Weeks Ago
Atlanta Fed GDPNow 2.0% 1.3% 0.4%
New York Fed Staff Nowcast 0.6% 0.8% 0.7%
CNBC/Moody’s Survey 1.8% 1.6% 1.5%

Recent Data 

Nonfarm payrolls increased 266K in November, a figure that was boosted by the end of the General Motors strike, and upward revisions to October and September totaled 41K. Over the last three and six months,  monthly job gains have averaged 205K and 196K, respectively. The unemployment rate and participation rate each ticked down a tenth in November, to 3.5% and 63.2%, respectively, reversing one-tenth increases in each in October. The robust pace of job growth revealed by the jobs report for November suggests that the economy has more momentum than had appeared to be the case. However, the stronger-than-anticipated job growth has not been accompanied by any meaningful upward surprises concerning wages. Average hourly earnings advanced a moderate 0.25% in November, from an October level that was marked up somewhat, and the 12-month change edged up a tenth to 3.1%. 

The preliminary results of the Michigan consumer survey for December showed a larger-than-anticipated rise in sentiment. That consumer sentiment index fell sharply in August but has increased for four consecutive months and now exceeds its level in July. The measure of longer-term inflation expectations was reported to have dropped two-tenths, to 2.3%, a level that is quite low by historical standards. However, it’s dropped to that level repeatedly this year, and we don’t expect this latest instance to have any bearing on policy. We  certainly don’t expect any change in the relevant FOMC statement language, which for some time has  described survey-based measures of longer-term inflation expectations as “little changed.”

Release Period Actual Consensus Revision to  Previous ReleasePreviously  Released Figure
ISM Manufacturing Index Nov 48.1 49.2 — 48.3
Construction Spending MoM Oct -0.8% 0.4% -0.3% 0.5%
Wards Total Vehicle Sales Nov 17.09m 16.90m — 16.55m
ISM Non-Manufacturing Index Nov 53.9 54.5 — 54.7
Trade Balance Oct -$47.2b -$48.5b -$51.1b -$52.5b
Core Capital Goods Orders MoM Oct F 1.1% — — 1.2%
Core Capital Goods Shipments MoM Oct F 0.8% — — 0.8%
Change in Nonfarm Payrolls Nov 266k 180k 156k 128k
Unemployment Rate Nov 3.5% 3.6% — 3.6%
Average Hourly Earnings MoM Nov 0.2% 0.3% 0.4% 0.2%
Average Hourly Earnings YoY Nov 3.1% 3.0% 3.2% 3.0%
Average Weekly Hours All Employees Nov 34.4 34.4 — 34.4
Labor Force Participation Rate Nov 63.2% — — 63.3%
Wholesale Inventories MoM Oct F 0.1% 0.2% — 0.2%
U. of Mich. Sentiment Dec P 99.2 97.0 — 96.8
U. of Mich. 5-10 Yr Inflation Dec P 2.3% — — 2.5%

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