Tuesday’s opening bell on Wall Street was accompanied by a series of robust economic reports from the United States. While these figures paint a picture of economic strength, they’ve dealt a significant blow to expectations of Federal Reserve rate cuts, leading to a continued slide in all three major U.S. stock indices.
The Job Openings and Labor Turnover Survey (JOLTS) report, released by the U.S. Bureau of Labor Statistics, revealed that job openings in November rose to a six-month high. This increase was primarily driven by substantial growth in the business services sector, while demand for employees in other industries showed more complex patterns.
Specifically, job openings increased from a revised 7.8 million in October to 8.1 million in November, surpassing all analysts’ expectations. The growth was almost entirely attributed to professional and business services, along with finance and insurance sectors, where job openings reached their highest levels in nearly two years. Conversely, accommodations, food services, and manufacturing sectors saw a decrease in job openings.
These latest figures suggest a slowdown in the three-year declining trend of job openings. This trend had previously sparked concerns about labor market deterioration and prompted the Fed to initiate a series of rate cuts. Now, with the job market appearing more stable and inflation proving stubborn in recent months, market expectations for significant Fed rate cuts this year have diminished.
Fed Chair Jerome Powell noted in December’s meeting that while the labor market is cooling, this cooling is “gradual and orderly” without dramatic fluctuations. Powell emphasized that the Fed’s focus has shifted back to inflation concerns. The upcoming Fed minutes, set to be released on Wednesday, will provide more clues about the central bank’s future policy direction.
Another report on Tuesday showed accelerated activity in the U.S. services sector in December, reflecting strengthened business activity. However, an index measuring input prices soared to a near two-year high, indicating rising inflation, which aligns with the Fed’s projections of smaller rate cuts this year.
The Institute for Supply Management (ISM) reported that its non-manufacturing PMI rose from 52.1 in November to 54.1 last month, exceeding market expectations of 53.3. This increase was attributed to strong demand. So-called hard data, including consumer spending, suggests that the U.S. economy performed robustly in the fourth quarter.
In terms of sub-indices, the indicator measuring prices paid for materials and services in the service sector jumped by over 6 points to 64.4. The revival of business activity and increased orders both indicate strong demand, intensifying concerns about persistent inflation.
Among the 18 service industries surveyed, 15 reported price increases in December. A respondent from the finance and insurance sector mentioned moving work overseas to reduce costs.
On the surface, the latest data suggests that the downward trend in service sector inflation may have stalled, implying no further easing of price pressures. However, current inflationary pressures might be temporary, and a softening labor market could help slow wage costs, potentially supporting inflation cooling in the future.
Following the release of this data series, traders are no longer fully betting on Fed rate cuts before July. As a result, the yield on 10-year U.S. Treasury bonds jumped to 4.677%, its highest level since May of last year. Spot gold prices saw an extended decline of $10, while the U.S. Dollar Index expanded its gains by 30 points in short-term trading.