US: Risk Of Partial Govt Shutdown Ticks Up, But Impact On Markets Limited

The two months of average hourly earnings data were a mixed bag rather than the outright weakness that the headlines suggest, with non-supervisory employee wage growth running firmer and hours worked also increasing in November. 

• Overall AHE growth of 0.14% M/M in November was clearly softer than the 0.3% M/M widely expected although it was countered by a stronger than expected 0.44% M/M in Oct (we had seen limited estimates with a median 0.3 but with risks skewed lower). Still, September was also revised lower to 0.19% M/M vs the previously estimated 0.25% M/M.
• The combination meant the Y/Y rate surprised lower, with 3.51% Y/Y (cons 3.6) after 3.75% in Oct for a fresh low since May 2021.
• Non-supervisory earnings painted a stronger picture however, at 0.35% M/M in Nov after 0.41% M/M in Oct and only a marginally downward revised 0.22% (initial 0.25%) in Sep.
• This typically less volatile category that captures about 80% of employees accelerated to a three-month high of 3.86% Y/Y from 3.81%.
• Another factor that makes the headline AHE figures look less weak is that average hours worked surprised higher in November at 34.3 (cons 34.2) after the 34.2 was unchanged from the previously reported 34.2 in September. This would mechanically have biased average hourly earnings of salaried employees lower in the month. 

• MNI: US REDBOOK: DEC STORE SALES +5.9% V YR AGO MO
• US REDBOOK: STORE SALES +6.2% WK ENDED DEC 13 V YR AGO WK

Initial dovish reaction to the uptick in the unemployment rate and soft AHE readings countered by the fact that the unrounded unemployment figure (4.564%) was a ‘low’ 4.6%.

• Elsewhere, the firmer-than-expected headline NFP reading and caution after the recent BLS notice flagging changes to statistical weights for the November household survey estimates, which will result in November labor force estimates having "slightly higher" variances than usual, further temper the initial market reaction.
• A firmer-than-expected control group reading on the retail sales release may also be factoring in.
• FOMC-dated OIS still prices ~6bp of easing for January, little changed vs. pre-NFP levels. 58bp of easing is priced through ’26 on the whole after a couple of spikes above 60bp during the initial reaction to NFPs.
• SOFR futures now flat to +2.0 through the blues. Implied terminal rate pricing moves to ~3.115% vs. 3.135% ahead of the NFP release, briefly hitting 3.035% in the wake of the data.
• The modest hawkish move that followed the weekly ADP employment print has been reversed.