What to Expect in the Week Ahead (Jobs Data, Fed Minutes)

The New Year's festivities will barely have settled down before we dive into an eventful start to 2024. The first week of 2024 will pass without any significant earnings announcements, but for investors eager for insights, there will be a handful of economic data releases to consider. It is particularly significant in the United States, as it features the year's first major economic announcement. Here's a preview of what to expect as we step into this new period.

Understanding the state of the U.S. job market is key to determining whether the 'Goldilocks' balance of economic conditions will extend into 2024, making the upcoming December non-farm payrolls report, due on Friday, a focal point.

There's been a cooling in economic growth and a reduction in inflation, sparking a significant rally across various asset classes and leading the Federal Reserve to consider further rate reductions in 2024. Concurrently, the economy has not shown significant negative impacts from the tighter monetary policies implemented in recent months.

However, if historically observed economic patterns persist, then the process of reducing inflation won't be without difficulties, and the most significant impact of the Federal Reserve's rate increases on the job market is likely approaching. Recent statements from officials of FOMC indicate their concern about a potential steady rise in unemployment rates.

San Francisco Fed President Mary Daly said that, "when the unemployment rate starts to rise, it tends to go up by a lot and not by only a little bit." Philadelphia Fed President Patrick Harker said he's hearing from contacts that "things are starting to soften in the economy, maybe faster than the data says."

Any major shifts from this equilibrium, either through unexpectedly high job growth or a steep decline in employment, could undermine investor confidence in the economy's smooth transition.

The last nonfarm payroll report of 2023 is expected to reflect a continuation of the slowing job growth trend, with the unemployment rate slightly increasing to 3.8%. The rise in jobs has been primarily confined to two stable sectors—health care and government—while most other industries have seen stagnant or declining growth. Although actions by the Federal Reserve may have tempered recession-like trends in the job market, some economists expect this effect is not yet definitively clear.