QUICK QUILL — Jobless claims have tended to be dismissed by market participants during the historically volatile end-of-year holiday period. The December 6th spike, nonetheless bears close watching, especially if it isn’t revised down materially. Next week’s December 13th figure that coincides with the employment survey week also bears close watching for an upside surprise. “Old” state level unemployment and employment hard data shows the labor creep is real from the bottom up.

TAKEAWAYS

1. The 236,000 initial claims print surprised the 220,000 consensus and exceeded 39 of 40 Bloomberg estimates; notably, not seasonally-adjusted initial claims rose 58% WoW last week, higher than the 20-35% increases in past calendar years structured identically to 2025
2. The 4-week average of Google search intensity for “file unemployment” remains up a stout 15.4% YoY; meanwhile, continuing claims have eased to a 1.7% YoY pace but have been positive for 45 straight weeks, and Google activity suggests this streak is set to continue
3. In the six months ended September, 30 of 51 states saw their level of unemployment rise, increasing the share to 59% from July’s interim low of 49%; though only 20% of states saw nonfarm payrolls fall in the same span, that threshold is not typically breached in expansion

QUICK QUILL — The Fed’s hawkish cut, with two dissents for no change (compared to one in October), was overturned by Powell’s dovish job comments in the presser. Our cyclical unemployment guide suggests the rate is closer to 5%, and that wage pressures will ease through 2026’s first half. Sluggish labor demand and a less encouraging mortgage application picture yearn for the Fed to keep cutting. With low January rate cut odds, a tactical opportunity is manifest for Treasury bulls in the 2s to 5s space.

TAKEAWAYS

1. JOLTS Quits fell to a cycle low 2.941 million in October while Layoffs rose to 1.854 million, just 50,000 south of their January 2023 cycle lag; a 2-quarter lag of the Quits-Layoffs spread reliably guides wage inflation and flags further easing in the ECI for Wages & Salaries
2. The 4-week average of Lightcast job postings was down 4.7% vs. January 2020 levels as of the end of November, the first negative read in ten weeks; only recession-proof Education and Healthcare saw positive growth, remaining up 7.5% vs. pre-COVID levels
3. Adjusting the MBA’s Purchase Index with the rejection rate from the NY Fed’s Credit Access Survey reveals a decline in activity since September; the perceived improvement in the MBA’s Purchase Index also contrasts with capitulating UMich Selling Conditions

QUICK QUILL — Yesterday’s backup in Treasury yields was highlighted by the largest monthly gain in current NFIB prices and an upside surprise in JOLTS job openings. Details in these reports and others from national payroll providers, however, suggest small business optimism to expand has faded and that private core job losses on Main Street and elsewhere across the economy have accelerated. The Fed should adopt a dovish cut stance at today’s FOMC meeting. If realized, expect a level shift down in the Treasury curve.

TAKEAWAYS

1. NFIB Raising Current Prices jumped 13 points to a net 34% in November, a record one-month increase and the highest level since March 2023; that being said, demand is not driving price increases, given Good Time to Expand was a weak net 13%, level with past downturns
2. ADP Small Business Private Payrolls fell by 120,000 in November, five times the -24,000 average over the prior six months; Paychex’s Small Business Jobs Index concurs, contracting for a seventh month in November with Education/Healthcare the main growth driver
3. The Private Core Hires-Separations spread totaled -181,000 over the five months ended October; the result suggests further downward revisions for private core NFPs from their 5-month decline of 90,000 and reinforces that January rate cut probability is underpriced

QUICK QUILL — The New York Fed’s Survey of Consumer Expectations revealed multiple disinflationary risks, household balance sheet pressures and future hits to consumer purchasing power. While inflation expectations remain sticky around the 3% level, the aforementioned factors offer convincing evidence that the Fed should not be three-and-done in this phase of the easing cycle.

TAKEAWAYS

1. NY Fed Household Financial Situation Expectations sank to a net -5% in November, a six-month low and seventh negative print in nine months; the pessimism flags further upside for Debt Delinquency Expectations, which sat at a seven-month high of 17.3% last month
2. NY Fed Mean Probability of Not Finding Another Job was north of 50% in six of the last eight months; the growing spread between Sentix Investor Expectations and UMich Consumer Expectations suggests firms will continue to favor capital over labor
3. NY Fed Food Price Expectations rose to a two-year high of 5.9% in November while Rent Expectations hit a five-month high of 8.3%; meanwhile, Medical Care Cost Expectations, at 10.1%, hit their highest level since 2014, in line with the annual open enrollment period

QUICK QUILL — At -6, views of current household finances vis-à-vis income ventured off lows in UMich’s preliminary take on consumer sentiment but remain well below their long-term average of +6. Perceived expectations between inflation-adjusted income gains and stock market gains mark a record diversion, evidence of the growing divide between the real economy for most Americans and those who own the lion’s share of financial assets. On that note, buying conditions remain in record low territory while labor market anxiety remains in recessionary territory, which is manifesting in depressed travel budgets. The best news is that home seller capitulation is finally taking hold, which will be required to normalize the housing market. The Fed remains woefully behind the curve as the corporate and household bankruptcy cycles make clear. Stay up in quality and hedged against the continued relative underperformance of consumer discretionary.

TAKEAWAYS

1. UMich Current Finances with Respect to Income rose to a net -6 in December but remain below the long-run average of +6; meanwhile, the 19.7-point spread between expectations for Real Income Gains (38.5%) and Stock Market Gains (58.2%) marks a record divergence
2. UMich Higher Unemployment Expectations remained north of 60% for an eighth straight month, flagging further headwinds for Consumer Discretionary; the average of BEDZ and EATZ ETFs for hotels and restaurants is now down 3.2% YoY, the third month in the red
3. The collapse in UMich Auto and Large Durable Buying Conditions flags further declines in real durable goods spending which is ~3% off its December 2024 peak; similarly, free-falling Home Selling Conditions guide lower for home sales until a new equilibrium is reached

QUICK QUILL — The narrative helping push bond yields higher yesterday was captured by initial claims’ surprise drop under 200,000. At this technically and fundamentally overvalued level, the risk for a correction higher is material. An aggregation of labor data via five alternative sources concurs. For Treasury bulls, this presents a tactical opportunity to ‘buy the dip’.

TAKEAWAYS

1. While initial claims sank to 191,000 during Thanksgiving week, a 1% reading in data back to 1967, Google searches for “file unemployment” have since spiked; similarly, the 3-month sum of WARN notices stayed above 100,000 in November vs. the 75,000 median since 2006
2. Since peaking at 44 last December, the Penta-CivicScience New Job Index has eased to 24.4 and mirrored declines in the 2-year and 10-year yields; growing job market pessimism aligns with Revelio Labs’ reporting payroll losses in five of the last seven months
3. Revelio registered job cuts in 11 of 15 industries in November, with private payrolls ex-Education and Healthcare sinking 45,000, echoing ADP’s 64,000 decline; the 1.17 million Challenger job cut announcements tallied year-to-date only lag 2001, 2002, and 2009

QUICK QUILL — ADP, ISM Services and Cox Automotive’s Dealer Sentiment triple tag-teamed to hammer home downside risks to labor, inflation and consumer spending. With less than a week until the December FOMC, the January meeting’s near-30% rate-cut probability is too low.

TAKEAWAYS

1. Core ADP payrolls, which exclude Education and Healthcare, fell by 64,000 in November, and their net 125,000 decline in the last four months is the largest since 2019; headline and core payrolls are both negative on a 4MMA basis, which is the sole preserve of recession
2. At a respective -1.5 and -0.5, the ISM Manufacturing and Services New Orders-Inventories spreads were both negative in November; notably, this marks just the 15^th month in data back to 1997 that both printed in the red, but four of those months have occurred in 2025
3. In Cox Automotive’s Q4 Dealer Sentiment Index, franchised dealers had subdued expectations, with the 3-month outlook falling to 49 as inventories rose to 59; their pessimism flags downside for auto sales vs. current Q4 average 15.5 million SAAR

QUICK QUILL — Credit managers validated economic expansion, but credit concerns in the labor-intensive service sector emphasize ongoing risks to employment. The absence of downside risk from the government shutdown explains the bounce in RCM/TIPP’s December Economic Optimism Index. Moreover, the divergence between investors’ optimism and non-investors’ pessimism for personal finances flags the linchpin of financial market buoyancy underpinning the “consumer resilience” narrative. Without it, the U.S. growth outlook would vaporize.

TAKEAWAYS

1. NACM Dollar Amount Beyond Terms for Manufacturing jumped to a rosy 60.2 in November, nearly ten points above the 50.7 long-run average; however, for Services, the same gauge sank to 48.2 and has been south of 50 for 15 straight quarters
2. The RCM/TIPP Economic Optimism Index rose 4 points to 47.9 but remained below the 50-line denoting net pessimism for a fourth straight month; the uptick aligns with the consensus expecting UMich Consumer Expectations to rise to 53.1 vs. November’s 51.0
3. RCM/TIPP’s Personal Financial Outlook for Investors rose to 63.4 in December, the 14th consecutive month north of 60 as S&P returns continue to climb; however, Non-Investors remain far more pessimistic, with December’s 49.4 print the third south of 50 in four months

QUICK QUILL — Disinflation was on full display in the ISM via easing bottlenecks and waning capacity and labor pressures. November’s cycle high in Bloomberg’s large bankruptcy count adds to our conviction. Higher equity volatility and a steeper yield curve would be two signs of investor capitulation to these realities.

TAKEAWAYS

1. ISM Mfg Supplier Deliveries fell from 54.2 to 49.3 in November, the first sub-50 print in four months; confirming the signal of fading capacity pressures was S&P Mfg Quantity of Purchases staying at a neutral 50.2, the fifth straight month below its long-run average
2. ISM Mfg Backlogs and Employments both printed below 45, a 10th percentile event in data back to 1993; dual weakness of this magnitude has happened seven times since 2024, on par with the 2001 and 2007-09 downturns and echoing weak ADP Mfg Employment figures
3. Bloomberg tallied 23 large-firm bankruptcies as of November 28th, matching August 2023’s cycle high and aligning with the 5s30s curve creeping back above 100 bps; the consumer discretionary sector accounted for 45% of these, nearly double its 25% share for the year

QUICK QUILL — Like the United States, industrial activity in Germany remains moribund with signs of oversupply in chemicals, which sit at the beginning of the supply chain. Record fiscal stimulus this year has also failed to lift GDP, the jobs market, consumer sentiment and income expectations. We remain constructive on the euro and respectfully beg to differ on the ECB’s holding pattern stance despite inflation slightly north of policymakers’ 2% target.

TAKEAWAYS

1. On a real basis, German GDP has lagged the U.S. for most of the post-COVID era, and printed at a flat 0% QoQ annualized in Q3; despite record stimulus measures passed earlier this year, German GDP has continued to lag behind the rest of the Euro Area this year
2. The IFO German Chemicals Inventory Assessment gauge has spiked 10.2 points to 31.3 thus far in Q4, the third highest print on record; the result flags upstream oversupply given Chemicals New Orders and Production Expectations both remain in negative territory
3. German Higher Unemployment Expectations fell 1.5 points to 57.2% in November, but have been above their long-run average for 17 months running; meanwhile, German GfK Income Expectations fell from 2.3 to -0.1, their first negative print since March