Baker Market Update
2025-01-10

Somewhat of an eventful week with trade deficit talk, jobless claims, the mourning of Jimmy Carter, and unemployment numbers. The US trade deficit widened in November, offering a bit of evidence that firms are frontloading imports ahead of anticipated tariffs from the incoming Trump administration. Some expect to see increased frontloading as the date to impose tariffs grows closer. The trade deficit grew to 78.2 billion in November (vs. 73.6 billion prior), amid an uptick in imports of “other goods”. Real imports rose 4.1% to 243 billion, while exports rose to 3.4% to 147 million. Meanwhile, nominal imports from Mexico and Canada rose 4.1% and 2.6%, respectively, hinting at some frontloading behavior. At the same time, nominal imports from China fell 1.3% and imports for autos rose 3.2% and their exports rose 15.7%. With October and November trade data in hand, net exports are on track to marginally boost fourth quarter GDP growth.

The jobless claims declined to start 2025 as seasonal factors anticipated larger post-holiday layoffs, but continuing claims surged again. Continuing claims are putting upward pressure on the median duration of unemployment, which rose to 10.5 weeks in November indicative of softening labor-market conditions. Initial jobless claims declined by 10k to 201k in the week ending of January 4th, below the consensus estimate of 215k. Seasonal factors expected an increase of 12.6% from the previous week. Continuing jobless claims surged by 33k for the week ending December 28th, 2024. Claims could rise ahead of Boeing Co. presented a range of measures to cut costs, including a 10% reduction in the workforce. With 2,192 Boeing employees expected to be permanently laid off in Washington beginning January 17th, that state could potentially face a 23% rise in claims when those workers are laid off. Other states, including Missouri, California, South Carolina, Alabama, Florida, Pennsylvania, Virginia, Colorado, and Oregon are also all facing layoffs of Boeing employees starting January 17th.

During mid-week, President Joe Biden had declared Thursday, Jan. 9, a national day of mourning to honor former President Jimmy Carter—who died at age 100 on Dec. 29, 2024—and allow the American people to “pay homage” to Carter’s memory on the day of his funeral. The day of mourning coincided with Carter’s state funeral, which was held at Washington National Cathedral and featured eulogies from President Joe Biden and former President Gerald R. Ford. Carter's remains were then transported to his hometown of Plains, Georgia, where a private funeral service was held for the former president.

By the end of the week, Bond yields spiked Friday morning as the Biden administration’s last jobs report showed surprising strength. Non-farm payrolls rose 256,000 in December (est = 165k) and the unemployment rate unexpectedly fell to 4.1% (est = 4.2%). Job gains were widespread with the largest gains in healthcare & social assistance (+69.5k), retail (+43k), leisure & hospitality (+43k) and government (+33k) while manufacturing, mining and wholesale trade saw slight job losses. The separate household survey showed even stronger gains with an increase of 478,000 jobs. Average hourly earnings rose 0.3% for the month (est = 0.3%) and 3.9% for the year (est 3.9%), suggesting wages continue to cool. Finally, the labor force participation rate held steady at 62.5% for the third consecutive month. Altogether, this was a surprisingly strong employment report with better-than-expected non-farm payroll gains, strong household survey gains, a drop in unemployment and cooling wage gains. Bond yields jumped on the news with the 2yr yield up 8bp to 4.35% and the 10yr up 7bp to 4.76% as of 8:15am CT. Fed funds futures pushed the first rate cut out to July/Sep with only a 30% chance of another cut in 2025.

Have a great weekend everyone!