📝U.S. Unemployment Rate Signaling A Labour Market Downturn: RBC

Consumer spending has been incredibly resilient, accelerating in Q3 despite higher interest rates and still elevated prices. But robust consumption has been financed in part via households spending more out of their current income than they used to, and accumulating less savings. That is not expected to persist, especially when the household income growth backdrop is getting murkier as labour market conditions deteriorate. Employment growth has remained relatively firm. But wage growth has slowed persistently. The 0.4 percentage point increase in the US unemployment rate over a 3-month period is also rare and has usually only happened at the start of a labour market downturn.

Fed officials remain concerned about inflation. Moving forward a dimming economic and labour market outlook

should continue keep a lid on price increases, in part balancing out risks of easing financial conditions as yield curve

will likely give back more of the aggressive steepening over the recent months. We don’t see the Fed hiking more this

year and expect them to start gradually moving key rates lower in the second quarter of 2024.

-RBC