December CPI Preview
Goldman Sachs:
We expect a 0.25% increase in December core CPI—above consensus of 0.2% but below the 0.30% average of the last three months—corresponding to a year-over-year rate of 3.27% (vs. 3.3% consensus).
Our forecast is consistent with a 0.21% increase in CPI core services excluding rent and owners’ equivalent rent and with a 0.18% increase in core PCE in December.
Going forward, we see further disinflation in the pipeline over the next year from rebalancing in the auto, housing rental, and labor markets, but an offset from an escalation in tariff policy.
We forecast year-over-year core CPI inflation of 2.7% and core PCE inflation of 2.4% in December 2025.
This is GS’ inflation tracker:
Consumers are more pessimistic:
- The NY Fed survey:
- U. of Michigan:
- But, like just about everything in America, it’s polarized:
Republicans must be buying bonds, although, as John Authers points out, “Republicans’ extraordinary belief that inflation is on the verge of almost total eradication could be even more of a problem” since “It’s almost 70 years since inflation last dipped as low as 0.1% without the aid of a major crash in the oil price (which is unlikely now as oil is not that expensive)”.
Canada’s job market ends 2024 with a bang, calling BoC cut into question
The Canadian economy added 91,000 jobs in December, the largest monthly increase in nearly two years, Statistics Canada reported Friday. The unemployment rate ticked down to 6.7 per cent from 6.8 per cent the month before.
The gains were broad-based across industries and provinces, suggesting that the Canadian economy has begun to respond to the Bank of Canada’s monetary policy easing cycle, which began last summer and picked up pace through the fall. (…)
Full-time positions increased by 56,000, with the rest of the gain in part-time positions. Total hours worked rose a substantial 0.5 per cent month-to-month and were 2.1 per cent higher compared with a year earlier.
After the data, financial markets trimmed their bets on another quarter-point rate cut from the Bank of Canada at its next meeting on Jan. 29, although they are still pricing in a 60-per-cent chance of a cut, according to LSEG data. (…)
With the unemployment rate at 6.7 per cent, there is still some slack in Canada’s labour market – something central bankers have said they want to address. And while the overall jobs report was strong, annual average hourly wage growth slowed to 3.8 per cent from 4.1 per cent in November. That’s positive from the central bank’s perspective as it looks to squeeze the last bits of inflation out of the service sector. (…)
NBF:
The Canadian labour market has ended a difficult year on a high note, with December recording the strongest monthly job gains in 23 months (91K). While this figure is currently upwardly biased by the use of 12-month moving averages to construct series relating to the non-permanent resident population (link), it remains that even controlling for population growth, data showed improvement during the last month of the year.
Indeed, the employment rate rose by two tenths, the first increase since January 2023. The unemployment rate fell by a tenth, after rising by three tenths in the previous month.
The government sector was a major contributor to December’s recovery, with almost half (44%) of the increase in December coming from the hiring of civil servants. Over the past two months, 60% of the increase in employment has come from this segment of the labour market, meaning that the recent momentum is not due to a change in sentiment among private employers.
Against this background, we need to be cautious before concluding that December’s performance heralds a rebound in the months ahead. The data on job vacancies does not point to a wave of private sector hiring in the coming months consistent with the weakness in profits.
What’s more, the risks to our growth scenario have increased in recent weeks as Canadian companies could face tariffs from the new US administration at a time of elevated inventories. . According to Statistics Canada, no less than 8.8% of Canadian workers are vulnerable to this threat, as they are employed in industries that were dependent on US demand for Canadian exports.
Given these many uncertainties and the Bank of Canada’s desire to create conditions conducive to above-potential growth (and a stabilization of the labour market), we continue to believe that the Bank of Canada will have to cut its policy rate to the lower end of its neutral range (between 2.25% and 3.25%) by the summer. This assumes that today’s report is not the new norm for the Canadian labour market.
Canada’s labor market meaningfully outperformed the U.S. in December. On a population adjusted basis, Canada added 3.5x more jobs in December.
Interestingly, that came without added pressures on wages, like in the USA: hourly wage growth of permanent employees slowed to +3.7% YoY from +3.9%. Goldman Sachs calculates that the three-month annualized wage growth was 2.9% in December.
At his most recent press conference regarding Canada’s latest interest rate decision, Tiff Macklem was asked about the potential economic impact of tariffs on our country. He referred to the analysis conducted by the Bank of Canada in its July 2019 Monetary Policy Report (MPR).
Notably, in that MPR, the BoC simulated the effects of a 25% tariff imposed by the U.S. on all trading partners, with reciprocal retaliation from those partners. This scenario closely aligns with the figures currently being used by President-elect Trump. T
he BoC’s estimates paint a grim picture for Canada: exports and investment would take a significant hit, while consumption would weaken due to deteriorating labour market conditions and adverse terms of trade.
As today’s Hot Chart shows, the projected GDP hit, estimated at a staggering 6%, would exceed that of any previous recession, barring the temporary setback at the onset of the COVID-19 pandemic.
The U.S. would also face challenges, contending with stagflationary pressures marked by sluggish economic growth paired with rising inflation.
Given these dire projections, the recent surge in U.S. term premia—reflected in a 100 basis point rise in 10-year U.S. Treasury yields, which is already creating headwinds for equity markets—should serve as a cautionary signal. One can only hope it acts as a warning to Mr. Trump about the significant negative consequences his aggressive protectionist agenda could impose on corporate America and the broader economy.
Samsung tops U.S. patents as Chinese firms rise
Samsung topped the list of most U.S. patent grants for the third straight year, while Huawei and other Chinese companies saw a significant increase in patent awards in 2024, according to new data from IFI Claims.
Chipmaking powerhouse Taiwan Semiconductor Manufacturing Co. (TSMC) supplanted Qualcomm for the No. 2 spot, with Apple rising three places to claim the No. 4 spot.
- China’s Huawei rose six places to No. 5 on the list, thanks to a 47% year-over-year increase in patents granted.
- IBM, once the undisputed patent king, fell another four places to No. 8.
- Overall, U.S. companies accounted for 56% of the U.S. patents granted, followed by those from Japan, China, South Korea and Germany. Applications by Chinese companies, though, were up 32% from 2023.
The overall number of patents granted, which had been declining for the past four years, rose 3.8% from calendar year 2023 to 324,043.
The Patent Office still has a large and growing backlog of applications waiting to be examined. There were 813,000 unexamined applications as of 2024, up from 750,000 from the prior year and around 540,000 before COVID, per IFI.
FYI:
- A recent workforce report estimated around 5.38 million people work in the engineering field across the U.S., and this has been rising by approximately 3.5% year-on-year.
- Software developers comprise the largest engineering workforce segment (427k, 7.9%), followed by civil engineers (6%).
- Approximately 141,000 students graduate with a bachelor’s degree in engineering each year across the U.S. There are also approximately 50,000 master’s degrees and 12,000 doctorates awarded each year.
- As of 2024, China has approximately 4.5 to 5 million engineers in its workforce but over 6.7 million undergraduate students are currently enrolled in engineering programs. Engineering accounts for 32.8% of all first university degrees in China.
- China is projected to produce over 77,000 STEM PhD graduates per year by 2025, compared to around 40,000 in the US.
Source: @WSJ