Nomura Economics North America: Labor Market Cracks Are Healing
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Nomura's North America economic weekly report highlights that January core CPI inflation came in softer than expected, rising just 0.295% month-over-month, primarily restrained by mild core goods prices. However, the impact on January core PCE inflation is expected to be limited, as several CPI components with heavy PCE weightings—such as legal and professional medical services—increased significantly, offsetting declines in used vehicle prices and owners' equivalent rent (OER). Consequently, Nomura revised its January core PCE inflation forecast down slightly to 0.414%.
On the labor market front, nonfarm payrolls exceeded expectations by adding 130,000 jobs, driving the unemployment rate down to 4.3%. Labor force participation and other metrics improved, with marginalized groups, including younger workers, showing notable gains. This suggests that previously identified cracks in the labor market are gradually healing. Meanwhile, trade tensions continued to ease, with the White House announcing trade agreements with Bangladesh and North Macedonia.
Nomura maintains its baseline monetary policy projection that the Federal Reserve, under Jerome Powell, will hold off on further rate cuts before implementing reductions in June and September. Additionally, the firm trimmed its Q4 GDP tracking estimate from 3.4% to 3.2%, reflecting weaker-than-anticipated December retail sales. Investors are now awaiting upcoming FOMC meeting minutes and potential Supreme Court rulings on IEEPA tariff cases.