US Companies Shed Payrolls in November; Retail Earnings and Fed Rate Cut Outlook

November Payroll Data and Economic Weakness

• 📉 ADP reported a decrease of 32,000 private-sector payrolls in November, the largest drop since early 2023, signaling a weakening labor market.
• ⚠️ Payrolls have declined four times in the last six months, contrary to economists' expectations of a gain.
• 📊 Other economic data, including weakening new orders and declining employment in the ISM services report, further points to a slowdown.

Consumer Spending and Retail Earnings

• 🛍️ Macy's reported a cautious consumer, leading to a disappointing profit forecast despite an overall solid report and strong year-to-date stock performance.
• 🛒 Dollar Tree, however, reported better-than-expected profits and raised its full-year outlook, indicating that middle to high-income shoppers are trading down to discount retailers.
• 💰 This split screen in consumer behavior highlights a general trend of consumers seeking value and lower prices.

Federal Reserve Rate Cut Expectations

• ✂️ The economic data suggests a coalition forming for a 25 basis point rate cut by the Federal Reserve in December.
• 📈 Incoming FOMC voters are expected to be more hawkish in 2026, potentially leading to a wider distribution in the Summary of Economic Projections (DOT plot).
• 🗣️ There's anticipation of dissent and division within the committee regarding future rate policy.

USMCA Trade and Canada's Economy

• 🇨🇦 Canadian negotiators are awaiting resolution on trade and border disputes between the U.S. and Mexico before addressing their own trade relationship under USMCA.
• 📉 Canada is currently dealing with lackluster domestic output and demand, with its labor market having softened over the summer.
• 🗓️ Definitive deal points for USMCA negotiations are not expected until the second quarter of 2026.

Potential Fed Chair Nomination

• 🏦 Kevin Hassett is widely expected to be nominated as the next Fed chair, with financial markets showing a positive reaction to the trial balloon.
• 🏛️ Despite potential political back-and-forth during confirmation hearings, Hassett is likely to pass the Senate confirmation process due to a narrowed division among Senate Republicans and the White House.
• ⚖️ While some political partisans may desire lower rates, the potential politicization of the Fed as an institution remains a concern.