Service sector confidence showed an unexpected decline in December, which could point to slower growth ahead, says Commonwealth CIO Brad McMillan in his latest Economic Risk Factor Update. For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.

1. The Independent Market Observer
Economic Risk Factor Update
January 2023

2. Source: Institute for Supply Management, Haver Analytics
ISM Services: Services PMI Composite Index
SA, 50+ = Increasing
The Service
Sector
Risk
Level

3. The Service Sector continued
• Service sector confidence fell more than expected, as the ISM
Services index dropped from 56.5 in November to 49.6 in
December against calls for a decline to 55.
• This result left the index in contractionary territory for the first
time since the pandemic-induced lockdowns in 2020,
signaling potential slower growth ahead.
Risk
Level

4. Source: Bureau of Labor Statistics, Haver Analytics
All Employees: Total Nonfarm
% Change – Year to Year, SA
Private
Employment:
Annual
Change
Risk
Level

5. Private Employment: Annual Change continued
• 223,000 jobs were added in December, which was better than
the 205,000 that were projected.
• This marks 24 consecutive months of job growth, highlighting
the current strength of the labor market despite the
challenges created by inflation and labor shortages.
• The unemployment rate fell from 3.6% in November to 3.5%
in December.
Risk
Level

6. Source: Haver Analytics
Spread Between 10-Year U.S. Treasury and 3-Month U.S. Treasury
Yield Curve
(10-Year Minus
3-Month
Treasury Rates)
Risk
Level

7. Yield Curve (10-Year Minus 3-Month Treasury Rates)
continued
• The yield curve remained inverted in December. The 3-month
Treasury yield increased from 4.37% at the end of November to
4.42% at the end of December. The 10-year Treasury yield rose
from 3.68% to 3.88%.
• This now marks three consecutive months with an inverted
3-month 10-year yield curve. While this doesn’t guarantee that
the economy will enter a recession, it’s a widely monitored
technical signal that could indicate further slowdowns.
Risk
Level

8. Source: Haver Analytics
Conference Board: Consumer Confidence
% Change – Year to Year SA, 1985=100
Consumer
Confidence:
Annual
Change
Risk
Level

9. Consumer Confidence: Annual Change continued
• Consumer confidence increased from 101.4 in November to
108.3 in December.
• On a year-over-year basis, confidence declined 5.99% during
the month, marking 10 consecutive months of declining
year-over-year confidence.
• While the year-over-year decline remains outside of the
historical danger zone, confidence remains well below the
pandemic-era highs of last year.
Risk
Level

10. Conclusion: Slowing Economy Subject to Risks
• December showed signs of continued economic growth despite
inflation concerns and expectations for tighter monetary policy.
• The strong hiring growth during the month was an encouraging
sign, as the job market continues to signal a healthy economy.
• Further economic growth remains the most likely path forward;
however, real risks remain in this outlook.
• The path of recovery remains uncertain in the short term, and
caution is still warranted.
Risk
Level

11. Certain sections of this commentary contain forward-
looking statements that are based on our reasonable
expectations, estimates, projections, and assumptions.
Forward-looking statements are not guarantees of future
performance and involve certain risks and uncertainties,
which are difficult to predict. Past performance is not
indicative of future results.
Diversification does not assure a profit or protect against
loss in declining markets. All indices are unmanaged, and
investors cannot invest directly in an index.
The information contained herein is provided for
informational purposes only and is based upon sources
believed to be reliable. No guarantee is made as to the
completeness or accuracy of the information.
Disclosure