Economists Pivot on Outlook for U.S.; Dallas Fed's Logan Is Cautious About Progress on Inflation By James Christie

Good day. Attendees at last year's American Economic Association annual meeting wrung their hands over their collective failure to spot the rise of inflation before it got out of hand. They also assumed it would take higher unemployment and a recession to bring inflation down. Over the weekend at this year's meeting, they had before them an entirely different matter: how did they underestimate the prospects for what increasingly looks like a soft landing-tamed inflation without a recession? Federal Reserve Bank of Dallas President Lorie Logan was at the meeting and said another interest rate increase by the Fed can't be taken off the table. "We've made a lot of progress towards a more sustainable path for the economy," she said, but "inflation could pick back up and reverse the progress we've made."

Now on to today's news and analysis.

Top News Top U.S. Economists Are Short-Term Happy, Long-Term Glum

The good news: the U.S. is headed for growth this year, not recession. The bad news: there is as yet little prospect growth will be any better than before the pandemic. That, for now, is the consensus of economists speaking at the annual meeting of the discipline's largest association.

Logan Backs Slowing, Then Gradually Ending Balance-Sheet Runoff

The Federal Reserve should first slow the pace of its balance-sheet reduction and then gradually end the program, to reduce the likelihood of having to stop it abruptly, Dallas Fed President Lorie Logan said Saturday. "Normalizing the balance sheet more slowly can actually help get to a more efficient balance sheet in the long run by smoothing redistribution and reducing the likelihood that we'd have to stop prematurely," Logan said, in a talk at the American Economic Association meeting in San Antonio, Texas. Logan didn't give any hint of when the Fed might end its balance-sheet reduction. She also said another interest rate increase can't be ruled out and that she was concerned about the drop in long-term interest rates that began in November. Treasury yields moved lower after markets started to sense the Fed might not hike rates again. (MarketWatch)

U.S. Economy Job Gains Picked Up in December, Capping Year of Healthy Hiring

The U.S. economy added 216,000 jobs last month , the Labor Department reported Friday. That was larger than November's gain of 173,000, and capped a year of steady gains for a job market that continues to defy expectations. For all of 2023, employers added 2.7 million jobs, a slowdown from 2022, but a better gain than in the years preceding the pandemic.

Rate Cuts in the Spring? The Jobs Numbers Aren't Convincing. ( Barron's ) Congressional Negotiators Reach Deal on 2024 Government Spending

Congressional leaders reached a bipartisan deal on Sunday setting a roughly $1.6 trillion federal spending level for the year. The House and Senate now have less than two weeks to craft underlying bills funding the government.

Biden Has a Second-Term Wish List. Congress Could Spoil His Plans. Lawmakers Push to Defuse China's Dominance of Older-Generation Chips Why the Strength of the Dollar Matters So Much for Stock Investors

With most large U.S. corporations having businesses across the globe, every investor needs to watch the strength of the dollar , because when the dollar is strong, foreign sales will convert into fewer dollars and thereby lower profits.

The Stock Rally Has Stalled. Now Comes Earnings Season. Wall Street Doubles Down on Bonds Investors Hope the Dogs of the Dow Can Find Their Bite Can Stocks Surpass 2022 Highs? Yes, but the Math Looks Scarier From There Can Charlie Munger's Playbook Still Work? Even He Wasn't So Sure Here's What It's Like to Retire on Almost Nothing but Social Security

Many Americans reach retirement with almost no savings . No 401(k). Few investments. Roughly one in seven Social Security recipients ages 65 and older depend on their benefits for nearly all their income

Here's When You Can Tap Your IRA or 401(k) Early Without Penalty Heard on the Street: Can Retirees Keep Splurging? Don't Count on It Key Developments Around the World Canada Offers Cities Money to Spur Home Building

Armed with a multibillion-dollar war chest, Canada is offering money to cities to ditch zoning restrictions that thwart residential construction as the country contends with an acute housing shortage .

Saudis Cut Crude Prices to All Regions Amid Oil-Price Weakness

Saudi Aramco on Sunday said it would cut crude prices to all regions, including its largest market in Asia-a move that comes amid weaker global oil prices and increased production by producers outside the Organization of the Petroleum Exporting Countries. ( MarketWatch )

U.S., Middle East Partners Start Talks on Next Chapter for Gaza Pentagon's Ukraine Coffers Run Dry, Threat to Kyiv's Grip on Territory

The stalemate over U.S. border policy is beginning to reverberate on the Ukraine battlefield, where Kyiv's troops are running out of ammunition and the Pentagon says it can't provide more without emptying its own arsenal.

How the Russian and Ukrainian War Efforts Compare, in 10 Charts Nord Stream Probe Faces Resistance From Poland Financial Regulation Roundup Crypto Industry Holds Its Breath for the First Spot Bitcoin ETFs

The Securities and Exchange Commission could soon approve spot bitcoin ETFs, which would mark a watershed moment for the industry , allowing investors to purchase bitcoin in their brokerage accounts as easily as stocks.

China Detains a Top Executive at Evergrande's Electric-Vehicle Unit

The bad news keeps coming for China Evergrande and its investors. A top executive of the beleaguered property giant's electric-vehicle business has been detained as part of a criminal investigation, adding to its mounting problems.

Forward Guidance Monday (all times ET)

10 a.m.: The Conference Board Employment Trends Index for December

11 a.m.: New York Fed Survey of Consumer Expectations

Tuesday

8:30 a.m.: U.S. trade report for November; Canada trade report for November

Research What Wall Street Is Saying About the December U.S. Jobs Report

Jamie Cox, managing partner at Harris Financial Group: "Give me a solid labor market with disinflation all day long-a strong, employed consumer trumps all. If your recession call is predicated on job losses, this report isn't for you."

Ronald Temple, chief market strategist at Lazard: "The case for the Fed to start cutting rates in the second quarter remains strong, but the magnitude of cuts this year is likely to be closer to 100 basis points than the 150 basis points the market had implied in recent days."

Lindsay Rosner, head of fixed-income multi-sector investing at Goldman Sachs Asset Management: "With a mild winter (so far) and jobs numbers typically bolstered by seasonal hiring, we anticipated a strong and better-than-consensus number, and here it is. This number does question the confidence of the market around the March cut."

Peter Boockvar, chief investment officer at Bleakley Financial Group: "I'm scratching my head at the lift in interest rates, as the job numbers were softer than expected when you include the downward revision, the sharp drop in employment seen in the household survey and the downtick in hours worked. Maybe people are just looking at the wage data? Also, most of the job gains are happening in just a few categories, two of which are in non-cyclical areas."

-Hardika Singh

Commentary The Job Market Can Stay Strong Without Rekindling Inflation

Not many people had a strong labor market and cooling inflation in 2023 on their bingo cards at the start of last year, and expecting it to deliver the same in 2024 seems like a lot to ask for, but it isn't impossible , Justin Lahart writes.

'Derisking' China-Reliant Supply Chains Is Creating New Risks

New research is shedding light on how "derisking" is playing out, and initial conclusions are concerning: Much of the resiliency supply-chain measures are designed to create may be illusory , Nathaniel Taplin writes.

Basis Points A barometer of U.S. business conditions at service-oriented companies fell in December to a seven-month low [https://www.marketwatch.com/story/u-s-economy-stumbles-at-year-end-ism-finds-d05caa72#::text=The%20numbers%3A%20A%20barometer%20of, as%20positive%20for%20the%20economy.], as the Institute for Supply Management's survey dropped from 52.7% in November to 50.6%. Readings over 50% are viewed as positive for the economy. The index ranged between 50% and 55% throughout 2023. (MarketWatch) Flat hiring in Canada last month despite continued strong population growth left the country's jobless rate steady as signs build that the labor market continues to loosen with a weakening economy. The number of employed working-aged people in Canada was effectively unchanged in December from the month before, while the unemployment rate held at 5.8%, Statistics Canada reported Friday. (Dow Jones Newswires) U.K. construction activity continued to decline in December, but companies turned more positive on the outlook for 2024, S&P Global's U.K. construction Purchasing Manager Index data showed. The PMI rose to 46.8 in December from 45.5 in November, although a figure below 50 still indicates a decline in activity. But the decline in December was the slowest in four months, S&P Global says. (DJN) German manufacturing orders in November were 0.3% higher than the previous month , German statistics office Destatis said Monday, reversing some of the losses in orders booked the previous month, when they fell by a revised 3.8%. Economists polled by The Wall Street Journal had forecast a 1.0% rise for November. (DJN) Retail sales in the eurozone fell unexpectedly in November, suggesting a gloomy end of the year for the bloc's consumer economy. Adjusted retail trade declined by 0.3% [https://www.marketwatch.com/story/eurozone-retail-trade-contracted-in-november-4c12b274#::text=Retail%20sales%20fell%20unexpectedly%20in,

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01-08-24 0715ET