Baker Market Update 2025-12-19

The Holiday season is in full swing as more delayed economic data arrived in time for Christmas! On Tuesday, the Bureau of Labor Statistics released the job reports for both the month of October and the month of November. The US economy added 64k jobs in November (est = 50k) following a loss of 105k jobs in October bringing the 3-month average job gain to 22k. November job gains were largely concentrated in health care (+64k) and construction (+28k) while transportation (-18k), leisure & hospitality (-12k), manufacturing (-5k) and government (-5k) saw the largest declines. The loss of jobs in October was largely due to DOGE related deferred resignations of federal workers earlier this year that led to 161k fewer federal government jobs in October. Federal government jobs have now declined for 11 consecutive months totaling 262k. The separate household survey showed the unemployment rate rose to 4.6% (est = 4.5%), the highest level since September 2021 and up 1.2% from the low of 3.4% in April 2023. The rise in the unemployment rate was at least partially due to an increase in the labor force participation rate to 62.5%, up 0.3% since July and a sign more people are reentering the labor market is an effort to find work. Finally, average hourly earnings rose 3.5%, the slowest pace since May 2021 but still above the pre-pandemic level of around 3%.

The jobs reports were viewed as a mixed bag that didn’t move the markets all that much as November job gains were slightly better than expected, but the October decline was larger than expected and the unemployment rate unexpectedly rose to a 4-year high. The Fed Funds Futures market is pricing in a 22% chance of a rate cut at the next FOMC meeting in late January.

Yesterday, the Consumer Price Index (CPI) was released for the month of November. The data for the CPI release included limit data for October and the November data collection started late on November 14th. Consumer prices rose less than expected as CPI grew at a 2.7% annualized rate, well below expectations of a 3.1% increase. Core CPI, which strips out volatile food and energy prices, was also cooler than anticipated, growing at a 2.6% annualized rate. The monthly increases also were less than expected, with both the headline CPI and core CPI increases at 0.2%, compared to estimates of 0.3%. Many experts and economists are saying to not take the most recent inflation report at “face value” as “it seems like the government shutdown had a big impact”. This morning, New York Fed President John Williams stated that “technical factors” likely distorted November’s inflation data. The next CPI report is set to be released on Tuesday, January 13th, 2026.

This morning, the University of Michigan Consumer Sentiment index rose to 52.9 (est = 53.5), up from 51 the previous month. High prices and weaker hiring continue to weigh on consumers with more than 60% of the respondents expecting joblessness to continue rising over the next year.

Let’s take a quick look at the markets this morning. Treasuries are seeing a small sell off, with the longer end of the yield curve selling off more than the short end. The 10-Year Treasury yield is currently at 4.14% with the 2-Year Treasury yield at 3.48%. Stocks are up as well with the Dow Jones Industrial Average up over 250 points.

Have a great weekend and I hope everyone gets their last-minute Christmas shopping done soon! Merry Christmas and Happy Holidays from all of us at The Baker Group!