January 5, 2025

QuickTakes

The Economic Week Ahead:

January 6–10

The economic week ahead is chockful of labor market indicators for November and December. We're expecting them to beat expectations. As long as corporate earnings continue to reach new record highs, companies are likely to hire more workers and increase real wages (chart). Ultimately, that supports consumer spending and stock prices.

Still, there are a number of potential headwinds for stocks, not the least of which is rising bond yields. Better-than-expected economic data could put further upward pressure on the 10-year Treasury yield, which is already at 4.60%. On balance, we still expect good economic news to be good news for the stock market. Here's more on what we're expecting this week:

(1) Employment. December's employment report (Fri) should show payrolls rose between 175,000-200,000 to a new record high. This is the first "clean" monthly employment report after October's was depressed by hurricanes and strikes and November's was boosted by returning workers from both. We still expect the three-month gain in payroll employment will average 200,000 per month by January's employment report (chart).

Additional hiring thanks to Trump 2.0 is highly likely, both due to potential new policies (i.e., deregulation and lower corporate tax rate) as well as general increased certainty following the presidential election. The unemployment rate likely stayed around 4.2% in December, as initial unemployment claims (Thu) remain low.

(2) Other labor market indicators. November's JOLTS report (Tue) is likely to show an increase in job openings since this series is highly correlated with the jobs-plentiful series in the Consumer Confidence Index survey (chart).

December's ADP (Wed) and Challenger (Thu) employment reports as well as Friday's payrolls data should show that companies ramped up hiring through the end of 2025 (chart).

(3) Purchasing managers surveys. December's ISM nonmanufacturing PMI (Tue) probably remained strong with a solid reading above 50.0 (chart). Higher-for-longer interest rates and strong income growth may keep consumers spending on services rather than goods. Retiring Baby Boomers are also likely to be spending more on services than on goods.

That said, the new orders and production sub-indexes in the M-PMI both increased above 50.0 in December. Trump's business-friendly policies, along with tariffs targeted at reviving US manufacturing, could lift the M-PMI above 50.0 early this year.

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