U.S. wholesale prices remained inflated in November, signaling a stall in the fight against inflation. Despite this, the majority of economists anticipate a 0.25% interest rate cut by the Fed next week. While acknowledging the persistent inflation, the market is reacting calmly to these figures, as they were mainly in line with expectations.
Municipal bonds have shown a mixed performance, with spreads tightening across the curve. Long-term Munis look relatively cheap compared to Treasuries, but heavy year-end buying has compressed valuations since September, making them less of a standout. Munis outperformed Treasuries across most of the curve, except at the short end, with ratios for 30-year bonds still offering the best entry point. On the issuance side, 2024 is shaping up as a record year, with another $9 billion of deals lined up this week, led by notable offerings from New York and Massachusetts. We continue to watch for credit quality, especially in education and renewable energy sectors.
U.S. labor costs grew less than initially reported in the third quarter, rising by 0.8% after a revised 1.1% decline in the second quarter. The adjustments reflect lower hourly compensation estimates, with unadjusted hourly compensation growing 3.1%-2.2% below earlier estimates. Productivity gains of 2.2% helped mitigate high operating costs, easing inflationary pressures and reassuring the Federal Reserve as it considers its policy stance ahead of its December meeting. Year-over-year, unit labor costs rose 2.2%, marking the smallest increase since 2023, while productivity grew 2%. This gives the impression that the job market is no longer the source of inflation.
Mayor Brandon Johnson’s 2025 Chicago budget proposal is making significant strides towards approval, with two city council committees advancing it despite tight votes and ongoing disagreements. The $17.3 billion budget aims to address a nearly $1 billion deficit without cutting services, relying instead on new revenue measures like a scaled-back $68.5 million property-tax hike, increased taxes on cloud services, streaming, and parking, and expanded ride-share fees. With S&P placing the city on negative credit watch, the stakes for passing a balanced budget by the December 31 deadline are high. The outcome of this proposal could have a substantial impact on the city’s credit rating.
