Markets end the week lower after red-hot jobs report

If the United States economy slows more this year, employers will be more reluctant to let workers go, Richmond Federal Reserve President Thomas Barkin said Friday.

"I do believe that there's going to be more labor hoarding than there was [in prior downturns]," Barkin said at an event hosted by the Maryland Bankers Association.

The term "labor hoarding" refers to when employers keep more workers on their payrolls when the economy is faltering to ensure they'll still be there when conditions improve. Many employers didn't follow this practice during the pandemic and had to contend with labor shortages when the economic recovery phase began.

That's why they may be treading more cautiously now, he said.

"If you've spent as long as people did trying to catch up on workforce, you're just a little more respectful of that challenge." However, he said if the downturn were severe "all bets are off on that," referring to labor hoarding.

From the conversations he's had with business owners, Barkin said he isn't seeing signs that people are concerned about the economic trajectory. But he thinks there's a "softening pattern" happening in the economy though he's not seeing material weakening.

Stocks were relatively unchanged on Friday but still ended the week lower.

For the week, the S&P 500 index fell 1.5%, the Dow declined 0.6% and the Nasdaq Composite lost 3.3%.

The losses cut short a nine-week rally for all three major indexes, powered by soaring optimism that the Federal Reserve is done raising interest rates and will begin easing policy this year.

On Friday, Wall Street parsed a hotter-than-expected labor report that showed the US economy added 216,000 jobs in December, according to Bureau of Labor Statistics data, surpassing economists' expectations of 160,000 jobs.

Stocks struggled to find footing through the trading session, as investors deliberated on what the latest data means for the Fed's fight against inflation.

The market had a rough start to the shortened trading week, after a downgrade on Apple's stock sent it lower, dragging down the broader market. Traders also likely took profits on some stocks that ran up during the 2023 year-end rally, contributing to the selloff.

Apple shares slipped 0.4% on Friday after the New York Times reported that the United States is preparing to file an antitrust lawsuit against the company. Shares of the iPhone maker slid 5.9% this week.

Treasury yields also edged up this week, putting more pressure on stocks as optimism diminished slightly that the Fed will soon cut rates.

Elsewhere, Costco shares added 1.2% after the retailer announced its December sales jumped nearly 10% from last year.

Investors are also looking to the beginning of earnings season next week. Estimated year-over-year earnings growth for S&P 500 companies during the fourth fiscal quarter of 2023 is 1.3%, according to FactSet.

The Dow rose 26 points, or 0.07%.

The S&P 500 gained 0.2%.

The Nasdaq Composite added 0.09%.

As stocks settle after the trading day, levels might change slightly.

Slowly but surely, Americans have grown more optimistic about the economy.

Friday’s jobs report should only help matters, Treasury Secretary Janet Yellen told CNN in a TV interview Friday.

The United States added 216,000 jobs in December, well surpassing economists’ expectations for a net gain of 160,000 jobs and capping off another banner year of employment growth. US employers added 2.7 million jobs last year. While that’s well below the totals of the record-setting 2022 (7.3 million) and 2021 (4.8 million), it’s still the 25th highest on record going back to 1939, Bureau of Labor Statistics data shows.

“The labor market continues to fire on all cylinders,” said Yellen, a former Federal Reserve chair. “Importantly, inflation has come way down over the last six months: The measure that the Fed watches most is running right at their target of 2%, and Americans are beginning to feel that.”

A big reason: Inflation is finally getting to the point where it’s not sucking away all of Americans’ hard-earned pay.

Annual wage growth measured 4.1% last month and has been outpacing inflation since May. That’s a pleasant turn from the prior 25-month stretch of negative growth.

“We had a period [in which] the pandemic was the story, and we had a period in which prices rose a great deal in a short time," Yellen said. "So, I think that we need to see a sustained period of low inflation with wages growing … more rapidly than inflation for people to feel good about their future prospects.”

The economic data for 2023 has been pretty good, if not completely odds-defying.

The December jobs report "brings to a close an extraordinary year in job creation which saw an increase of 2.7 million in total employment and a record 167,451 million Americans employed," Joe Brusuelas, RSM US principal and chief economist, wrote in a note on Friday.

"During the past year, unemployment averaged 3.6% and closed the year at 3.7% in what the best year for labor since was the 1950s."

However, many Americans felt downright lousy during much of it.

In a November CNN poll, 33% of respondents said they approved of the way President Joe Biden is handling the economy. It was the lowest monthly total since June-July of 2022, when inflation spiked to its highest level in more than 40 years.

Other closely watched measures of consumer confidence have remained below their pre-pandemic levels but have turned more positive in recent weeks.

On Monday, the latest read on Americans' feelings about the economy will land when the Federal Reserve Bank of New York will release the findings from its latest Survey of Consumer Expectations.

Friday's jobs report was yet another indicator that the US appears to have succeeded in achieving a near-impossible feat of having inflation fall without hurtling the economy into a recession.

"What we are seeing now, I think, we can describe as a soft landing," Yellen said. "My hope is that it will continue."

Treasury Secretary Janet Yellen said Friday the US economy is already in the midst of an extremely rare feat known as a "soft landing," which is when the economy slows just enough to bring down inflation without jacking up unemployment.

"What we are seeing now, I think we can describe as a soft landing," Yellen said Friday in an interview with CNN anchor John Berman, following the release of the December jobs report. "My hope is that it will continue."

Hiring in December remained robust, with employers adding a strong 216,000 jobs that month, while the unemployment rate held steady at a low 3.7%. Yellen cheered Friday's report, saying the latest batch of labor data released this week points to "an economy that has now recovered and transitioned to stable and steady growth."

Still, the Treasury chief acknowledged that there needs to be a "sustained period of low inflation with wages growing" before Americans can officially accept that inflation is in the rearview mirror.

Indeed, the Federal Reserve, which is officially tasked with taming US price increases, has seen some substantial progress in bringing down inflation. The Fed's preferred inflation gauge — the Personal Consumption Expenditures price index — rose 2.6% in November from a year earlier, down from a four-decade peak of 7.1% in June 2022. The core index, which strips out volatile food and energy prices, rose 3.2% during the same period.

And on a six-month annualized basis, the core PCE price index rose 1.9% in November, the first time that measure has dipped below 2% in more than three years. That figure has been the earliest and most notable piece of evidence that the US economy might have already achieved a soft landing.

However, most economists agree that slower inflation needs to become a sustained trend before anyone can start popping champagne corks.

Stocks were mixed early afternoon Friday, as investors continued to parse the stronger-than-expected December jobs report.

The Dow fell 69 points, or 0.2%. The S&P 500 rose 0.1% and the Nasdaq Composite added 0.2%.

The US labor market added 216,000 jobs in December, according to Bureau of Labor Statistics data, surpassing economists' expectations of 160,000 jobs.

Average hourly earnings grew by 4.1% last month from a year earlier, up from November's 4% gain.

The robust job total and wage growth is a double-edged sword for investors. The data suggests there could be continued strength in consumer spending, which has helped support the economy through the Federal Reserve's aggressive interest rate increases.

But resilient spending could make it harder for the Fed to tame inflation, which remains above its 2% target. That has some investors worried that the central bank will delay bringing down rates to later this year.

The federal futures market is currently pricing in a roughly 68% expectation that the Fed will cut rates in March, down from 89% a week earlier, according to the CME FedWatch Tool.

Unemployment among Black and Hispanic workers settled in December below the highest levels reached in 2023, the Labor Department reported Friday.

The unemployment rate for Black workers fell to 5.2% in December, down from 5.8% in November and below a 2023 high of 6% reached in June. That's above an all-time low of 4.8% reached in April, but still below pre-pandemic levels.

The jobless rate for Black men older than 19 fell sharply in December from the prior month, reaching 4.6% from 6.3%, while it held steady for Black women 20 years of age and older.

Meanwhile, the unemployment rate for Hispanic workers increased to 5% in December, up from November's 4.6%, but below a 2023 peak of 5.4% reached in February. Unemployment among Hispanics reached a record low of 3.9% in September 2022, matching the rate registered in September 2019.

Joblessness among Hispanic men and women older than 19 increased in December.

Here's what Wall Street has to say about the hotter-than-expected jobs report.

• "As the market has begun to price in more rate cuts than the [Federal Reserve's rate-setting committee] is forecasting, expectations have evolved that the labor market will be slowing. The December employment report showed that it isn’t and that momentum remains," said Matt Dmytryszyn, chief investment officer at Telemus.
• "The Fed cannot say 'mission accomplished' on inflation, as the measure of average hourly earnings shows, and we think they remain cautious on the idea of lowering rates too quickly. Yet we can also say economic growth remains positive and a recession is not imminent," said Steve Wyett, chief investment strategist at BOK Financial.
• "For markets, a tumultuous start to the year appears to remain in place given these types of numbers do not support cuts from the Federal Reserve beginning in March, or anywhere near the 6 cuts projected for 2024. Volatility looks to be the flavor of the month for January," said Alex McGrath, chief investment officer at NorthEnd Private Wealth.
• "The bull case for stocks was the proverbial threading of the needle by the Fed, with a soft-or-no-landing outcome while inflation stayed around 2%. At the very least today's report is likely to make investors rethink whether both stable growth and low inflation can happen simultaneously," said Melissa Brown, managing director of applied research at Axioma.
• "As long as the consumer stays strong, the economy will grow and the stock market will eventually follow. Once unemployment jumps higher and layoffs begin, then all bets are off, but in the meantime the death of this bull market has been greatly exaggerated," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

President Joe Biden heralded the strong December jobs report, touting the news as further evidence that 2023 “was a great year for American workers.”

“The economy created 2.7 million new jobs in 2023 — a year when the unemployment rate was consistently below 4% — more jobs than during any year of the prior administration,” Biden said, setting up a contrast with predecessor former President Donald Trump. 

Biden highlighted lowering inflation and higher wages, but acknowledged that "some prices are still too high for too many Americans.”

US stocks opened mixed on Friday morning after a hotter-than-expected December jobs report.

Markets waffled up and down in the first minutes of trading as traders struggled to find direction following a key Labor Department report that showed the US economy added 216,000 jobs in December. Wall Street had expected 160,000 jobs would be added in the final month of the year.

While a resilient job market is good news for American households, it also signals that the Federal Reserve could hold off on immediate interest rate cuts this year. Financial markets are now factoring in just over a 50% chance of a rate cut at the Fed's March meeting, down from about 75% one week before the report.

The Dow gained 27 points, or 0.1% on Friday morning. The S&P 500 and tech-heavy Nasdaq both gained 0.2%.

Still, the first week of the new year has been rough on Wall Street — both the S&P 500 and Nasdaq are on track to snap their nine-week winning streaks.

Investors, meanwhile, are already looking to next week, when trading activity will pick up as traders' vacations end and inflation reports are set to be released. Large banks will also kick off the fourth-quarter earnings season on Friday.

JPMorgan Chase’s health care conference and CES also begin next week. These conferences will likely provide some clarity on key themes driving trading in 2024, including consumer spending, GLP-1 weight loss drugs and artificial intelligence.

In corporate news, shares of Peloton jumped 4.2% on Friday after the company announced it will partner with TikTok to bring short workout videos to the platform.

Shares of Costco were up 1.6% after the company announced that its December sales jumped nearly 10% year over year, largely fueled by online purchases.