Stock bulls will be trying to make it four straight days of gains though the upside momentum may be cooling a bit ahead of key U.S. inflation data due out Friday and the Federal Reserve’s upcoming policy meeting next Tuesday and Wednesday, December 14-15.

Labor market

Investors were somewhat disappointed yesterday with data showing job openings in the U.S. unexpectedly ticked up in October to 11.03 million, only slightly below the record set this past July. Openings rose by +431,000 month-over-month which also ranks as the biggest one-month uptick since July. The more than 11 million job openings compares to just 7.4 million people counted as unemployed in October, which is about the widest gap we have seen in the last two decades.

The quits rate (people voluntarily leaving jobs) also remains near a record. The extreme tightness in the labor market doesn’t bode well for inflation as the solution to attract more workers is primarily to raise wages. The mismatch is most severe in low-wage jobs like leisure and hospitality where pay has climbed more than +12% versus overall wage gains of around +5%.

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Labor shortages are also weighing on business growth with a lot of companies in the frustrating situation of being unable to match current demand let alone take on new business because they simply don’t have enough employees.

The worry is that if this dynamic drags on for too long, we end up in a low-growth, high-inflation situation that could push the U.S. economy into a recession. The Fed may not be able to do much to help on that front either, at least in the near-term, as there isn’t much in their toolbox designed to control wages. 

Bulls are still expecting things to level out next year once the holiday shopping and shipping surge fades and consumers have ticked a few more items off their demand lists. That in turn is expected to ease some of the demand for workers and help curb wage gains.

Covid impact 

Concerns about the new Omicron Covid variant having a negative impact on economic growth are also fading into the background with updates this week being viewed as mostly positive by investors. Pfizer said yesterday that early lab studies shows three doses of its Covid-19 vaccine provides a high level of protection against the Omicron Covid variant, which includes the initial two-shot series plus the booster. 

Two doses of the vaccine showed a reduction in efficacy against Omicron, though researchers say they may still prevent severe disease. More rigorous testing is underway but it will be another week or two before the results are available.

In the spotlight

There is not much on the economic calendar today with just Weekly Jobless Claims and the Energy Information Administration’s Natural Gas Report. Earning are a little more lively with results due from Broadcom, Chewy, Costco, Hormel, Lululemon, and Oracle.

We’ve finally started to see an increase from US fund investors again starting to buy US stocks. Inflows into US stock funds totaled +$7.4 billion into the first week of December, which is a reversal from the prior two weeks which showed outflows of -$11 billion and -$3 billion respectively. Interestingly, bond funds reported outflows of -$4.5 billion. And commodity funds, which are mostly invested in physical gold, saw their first weekly outflows of -$321 million in five weeks. Source ICI Money Flow Data 

US Credit Card Balances are Rising at a Healthy Clip once again and, unlike 2020 they are increasing as we go into the last stages of Holiday 2021. Moreover, we are still far below ($67 billion) the balance levels of March 2020 so there is room for further growth. Again, contrary to what many might believe, this is not a function of Americans borrowing to make up for lost income, it’s considered more a sign of “consumer confidence”.  Source WSJ

How Wall Street Is Digesting The Labor Shortage? by Inna Rosputnia

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