The phrase of the day is “labor market stabilization.” After the payroll number beat expectations (256k versus 165k expected) and the unemployment rate dropped 0.1%, many analysts have declared that the labor market is stabilizing.

But, given that the payroll number only improved 29k versus the prior month’s number (before it was revised down today) and wages fell from the prior month (+0.3% from +0.4%), this labor report doesn’t say anything much different than the one before it. Today’s data that goes into the Lantern Daily Economic Index (unemployment, wages, non-farm payrolls, and consumer confidence) mostly cancelled each other out and caused the index to rise a tiny +0.10 (see chart below).

Interest rates certainly rose today at the front-end of the yield curve because of the numbers (2-year +10 basis points), but the Fed is about as hawkish as they can be with the data in hand. Jeffrey Schmid, President of the Kansas City Federal Reserve said yesterday that he thinks the Fed is about done lowering rates. Peak hawkishness? Compare this with Austan Goolsbee’s idea (and I think Jerome Powell’s too) that the Fed needs to keep cutting with economic strength to foster a “soft-landing” and that the destination is around 3% even before economic weakness. The Fed is currently at 4.375%. The bond market is priced for just one more cut in this cutting cycle and for Fed funds to be at 4.26% at the end of 2027 (SOFR futures), yet the Fed’s latest projections suggest they will cut back to 3.1% by the end of 2027; a big gap.

ADP jobs were quite low for December at 122k and it is the trend of both series that leads me to think a recession begins in the first half of this year (see chart below). As for interest rates, the stock market is now being affected by how high they are. Before the most recent yield peaks (10/2023 and 04/2024) stocks weakened suggesting a threshold where the economy starts becoming affected too and economic data comes back down. I think that this secondary trend of interest rates upwards since October will peak this month. Its narrative feels like it has saturated its potential, paving the way for hints of weakness to take-over.