Wage Inflation Is Continuing To Cool Off

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here.

Cooling Wage Inflation

The Labor Department announced on Friday that 223,000 payroll jobs were created in December, which was better than economists’ consensus expectation of 203,000. The unemployment rate declined to 3.5% in December, down from a revised 3.6% in November, due predominately to a shrinking workforce as 231,000 workers actively looking for a job left the workforce.

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The November payroll report was revised down to a 256,000 increase, down from 263,000 previously estimated.

Average hourly earnings improved by 0.3% or 9 cents to $32.82 per hour. Over the past 12 months, average hourly earnings rose 4.6%. Interestingly, the average hourly workweek declined to 34.3 hours, while the labor force participation rate was 62.3%.

Overall, slower average hourly earnings are indicative that wage inflation is continuing to cool off, so the December payroll report was well received by financial markets.

The other positive development is the ISM service report came out today and announced that its non-manufacturing service index plunged to 49.6% in December, down substantially from 56.5 in November. This is the first time after 30 months that the ISM service index fell below 50 and is signaling a contraction.

Some of the ISM service components that plunged were the new orders component that dropped to 45.2 in December, down from 56 in November, while business activity component slipped to 54.7 in December, down from 64.7 in November. Six of the 18 industries that ISM surveyed reported a contraction.

In the wake of the ISM service report, Treasury yields fell and rumblings that the Fed may stop raising key interest rates sooner than later emerged.

Teetering on Recession

The Institute of Supply Management (ISM) also reported on Wednesday that its manufacturing index declined to 48.4 in December, down from 49 in November. This is the second straight month that the ISM manufacturing index has been below 50, which signals a contraction after 30 straight months of expansion.

Interestingly, the production component declined to 48.5 in December (down from 51.5 in November), while the new orders component declined to 45.2 in December (down from 47.2 in November).

The backlog of orders component rose to 41.4 in December (up from 40 in November), but remains very weak. Only 2 of the 15 industries surveyed reported an expansion in December. The industries that reported growth in December were Primary Metals as well as Petroleum and Coal Products.

Overall, the ISM survey confirmed that the manufacturing contraction is getting worse.

If you have both services and manufacturing contracting, that means we're teetering on a recession.

Coffee Beans

A team of 200 bakers combined their efforts in Greece to create a massive vasilopita, a traditional New Year's cake, weighing in at more than 11,000 pounds and made from 8,800 pounds of flour, 4,400 pounds of butter, 2,200 pounds of sugar, 110 pounds of cognac, 2,000 eggs, 1,500 oranges and 4 boxes of vanilla. The cake was split into 50,000 pieces and served to attendees. Source: UPI. See the full story here.