Stocks rallied yesterday as traders repositioned ahead of today’s big job number. Consumers borrowing slowed in October indicating that higher rates are, in fact, biting into consumption.
Double take. Ok, it’s Friday, and I typically try to keep it light on Fridays to ease you into the well-deserved weekend break. Unfortunately, it is not just a normal Friday. It’s jobs Friday, so I have a quick missive on that, but I also want to show you something interesting. So, today you are going to get a two-for-one, and I promise, I will try to keep it simple. But you have to promise to look at this chart of Consumer Credit. That includes credit cards, auto loans, school tuition, loans, etc. Have a look then keep reading.
I am hoping that you notice the trends which I have rather sloppily drawn in to illustrate how monthly increases in consumer credit were on the rise from the pandemic’s onset through mid-2022 when the Fed was in at its most-aggressive inflation fighting. That indicates that consumers were not just pushing prices higher with their free-flowing dollars, but also augmenting that demand with credit. If you have $50 in your pocket you can make stuff happen, but if you have a credit card, that $50 can become $5,000, with which you can really make stuff happen. “Happen,” as in consumer-driven demand-pull inflation. The big takeaway from this chart is that trend is noticeably declining. In other words, consumer credit growth is in a slowing trend to lower levels than before the pandemic. That, my dear readers, is a direct result of higher borrowing costs which is directly related to higher interest rates… thank you Fed. Good news on the inflation fighting front.
Now, on to today’s big employment number. Change In Nonfarm Payrolls is expected to show an increase in new jobs over last month’s number. The Fed is hoping for a decrease in those numbers, because a strong labor market drives inflation. See Tuesday’s note for more detail and a nifty chart. The reason that this month’s number is expected to be higher than last month’s has to do with the ending of the United Auto Workers and Screen Actors Guild union strikes. Workers are getting back to wrench and script. Good news. The takeaway here has to do with the strength of the labor market. Tight labor markets occur when employers’ labor demand is strong, and supply is short. That phenomenon occurred in the wake of the pandemic where laborers were reticent to return to work, demanding higher salaries. Employers with no choice were forced to push up wages to fill vacancies. Simultaneously, many employers have had a windfall of profits in the past few years. Have you checked automobile prices lately? If you don’t want to just look at auto manufacturers’ EPS growth in the past 5 years compared to the 10 years prior. Those, my friends are a ripe condition for strikes. Those strikes, unfortunately end up costing manufacturers more which can impact prices to consumers. But the reality is that auto sales have been weakening and the unions have struck an agreement. Weakening auto sales leave very little room for automakers to raise prices. Unions also recognize a softening labor market, which led to an ending to strikes. What drove () all this? Higher interest rates. Thank you, Fed. There, you got two thoughts in one day. Today’s session is likely to be volatile given the time of year and the day of the week… and the employment numbers, so stay focused.
WHAT’S UP or down IN THE PREMARKET
Lululemon Athletica Inc (LULU) shares are lower by -2.46% in the premarket after it announced that it beat EPS and Sales estimates by +10.7% and +0.65% respectively. The company gave soft full-year guidance and current quarter guidance that was below median analysts’ estimates. In the past 30 days, 20 analysts have increased their targets, while 14 kept them unchanged, and none lowered them. Potential average analyst target upside: +3.9%.
Carrier Global Corp (CARR) shares are higher by +5.88% in the premarket after it announced that Honeywell agreed to acquire its security business for $4.95 billion. Honeywell’s shares are down by -1.92% in the premarket. Dividend yield: 1.43%. Potential average analyst target upside: +7.2%.
YESTERDAY’S MARKETS
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