And there were in the same country shepherds abiding
in the field, keeping watch over their flock by night.
And, lo, the angel of the Lord came upon them,
and the glory of the Lord shone round about them:
and they were sore afraid.
And the angel said unto them, Fear not: for, behold,
I bring you good tidings of great joy,
which shall be to all people.
And this shall be a sign unto you; Ye shall find the babe
wrapped in swaddling clothes, lying in a manger.
And suddenly there was with the angel a multitude of the
heavenly host praising God, and saying,
Glory to God in the highest, and on earth peace,
good will toward men.
–Book 42, Luke (002:08-14)
The Bible, King James Version
When Charlie Brown asked, “Isn’t there anyone who knows what Christmas is all about?” Linus took center stage in 1965’s A Charlie Brown Christmas. Up to that point, Charlie Brown was taking flak for picking a little tree for the Peanuts Gang’s Christmas play. His good friend Linus just put things into perspective.
There are times when economic data merits the same treatment. Yesterday’s November Durable Goods report spurred a Bloomberg headline that could have made a macro bull feel a bit giddy: “Orders for U.S. Business Equipment Rise by Most in Over a Year.” Granted, new orders of Nondefense Capital Goods Ex-aircraft have the pride of place for being the hard data leader for capital spending (capex) trends. And we can’t argue that the 0.7% month-over-month (MoM) rise was the largest since August 2023’s 0.9% MoM advance (blue line). But was it a release-the-animal-spirits development?
Data out of the Chicago Federal Reserve frame this MoM gain and others since late 2022 against a below-normal capex outlook. The Seventh District’s December Survey of Economic Conditions (CFSEC) revealed that at -15, the planned Capex Index remained in below-average territory (yellow line). For perspective, since October 2022, there have only been two non-negative prints of +1 in January 2024 and 0 in March 2024.
While hope runs high for an industrial recovery in 2025, signs of a loosening labor market suggest such optimism is unwarranted. The Conference Board’s consumer confidence index disappointed all 47 economists surveyed by Bloomberg as concerns about the future returned after a post-election pop. Conference Board noted that “consumers in December were substantially less optimistic about future business conditions and incomes. Moreover, pessimism about future employment prospects returned after cautious optimism prevailed in October and November.”
To that end, the Fewer Jobs index rose to a 20-month high of 21.3 (green line). Moreover, the 5.1-point uptick in the last two months was material, scaling to a +1.3 z-score. From a bottom-up viewpoint, consumers’ rising trepidation about future job prospects is not surprising. December’s large bankruptcy count for companies with $50 million-plus in liabilities filing Chapter 7s or 11s continued to churn. Through this past Sunday the 22nd, December is running at a monthly pace of 23, which would put it on par with the August 2023 cycle high month. In the last week, places you’ve frequented in the past, like Party City or The Container Store, were added to the list.
The Chicago Fed concurred with households’ increasing employment angst. In December, CFSEC’s current hiring index fell to -36.9 (orange line); the pandemic shock notwithstanding, the lowest fundamental reading on record. Not to be left out, CFSEC’s current labor costs index also plumbed to a cycle low -43.9 this month. These simultaneous signals lean toward both slower job growth and higher unemployment risks and add evidence that yet-to-be benchmarked nonfarm payrolls are overstating current income growth.
Conference Board income expectations also about-faced, falling -5.7 points over the month (red line). As monthly declines go, the drop translated to a significant -2.2 z-score. While monthly changes in income expectations are volatile, the disinflationary extreme was backed up by fear factors rising in last Friday’s University of Michigan (UMich) final consumer survey for December.
The devil was in the details of the leader of leaders — Higher Unemployment Expectations. Of the 18 demographic groupings compiled by UMich, 16 clocked job loss fears above their respective long-run averages. As recently as October, there were just seven cohorts with above-normal concerns. Further examining the ‘bear’ tail in December, 11 buckets were at the 40% mark or higher while five were at 45% or more; in November, these filters registered zero buckets for both. What’s worse, some of the biggest worries came from those in the ‘know’ (read: hiring managers), including those at the top of the income distribution (44%) and with the greatest education (48%).
A sharp drop in income expectations coupled with widespread risks of higher joblessness spells caution for discretionary spending. To that end, the Conference Board indicated that vacation intentions over the next six months fell -6.2 percentage points on a year-over-year basis (YoY, lilac line) to 41.2% of those surveyed in December. A compression of such magnitude is itself a cyclical indicator. In turn, the trend in vacation intentions puts discretionary consumer pricing for airfares (up 4.7% YoY in the December CPI) and hotel rates (up 3.7% YoY) high on the watchlist for downside surprises. That may bring tidings of great joy to the inflation hawks on the FOMC. But a breakdown in the travel and tourism cycle has recession written all over it.