The start of 2024 has seen an unexpectedly strong non-farm payrolls gain, hitting 353,000 in January (+30,000 m/m) – the highest figure seen for more than a year. In addition, this figure was coupled with a significant upward revision to the December data (330,000 jobs created, compared to the initial figure of 216,000). At the same time, the unemployment (+3.7%) and participation (+62.5%) rates remained stable.
The business confidence surveys for January echoed the strength of the labour market. The rise in the ”New Orders” component (52.5, +5.5 pp) helped to push the ISM Manufacturing to its highest level since September 2022 (49.1, +2.0). However, despite this rise, the index did still remainin contraction territory. The ISM Non-Manufacturing index also posted a significant increase (53.4, +2.9 pp), which was mainly driven by the employment sub-component returning to positive territory (50.5, +6.7 pp). The results are in line with continued US growth in Q1 2024, which we expect to stand at +0.6% q/q (-0.8 pp compared to the growth rate in Q4 2023), when the Atlanta Fed's GDPNow estimate is +0.7-0.8% q/q.
US consumer sentiment has improved significantly recently and is therefore more in line with macroeconomic data. The University of Michigan Consumer Sentiment Index stood at 79.6 in February (+0.6 pt m/m), the highest level seen since July 2021. However, consumer confidence measured by the Conference Board fell that same month, bringing the curtain down on four months of consecutive improvement. The index stood at 106.7 (-4.2 pts), while continuing to reflect a clear divergence between the "assessment of the current situation" (147.2) and "expectations" (79.5) components.
The Federal Reserve decided to keep the interest rate target at 5.25-5.50% at the end of its first meeting in 2024. Its Chair, Jerome Powell, acknowledged the progress made in fighting inflation, but stressed that it was not yet time for a pivot. In any event, the latest published data, whether they relate to the labour market or inflation, are not likely to expedite the timelines for rates cuts. CPI inflation fell to +3.1% y/y in January (-0.3 pp), with core inflation stable at +3.9%, which was above expectations. We estimate that the first rate cut will occur in Q2 (in June), with the Fed Funds target standing at +4.25-4.5% at the end of 2024.
Article completed on 27 February 2024
