Why the market is obsessed with unemployment

By Nicole Goodkind, CNN

As the year comes to a close, it seems that the market’s focus on inflation rates are shifting to a new area of concern: Unemployment. While the Federal Reserve has taken steps to fight inflation by curbing economic growth, the full extent of the damage to the employment market is yet to be seen.

What’s happening: Low unemployment rates and wage growth may appear to be good for an economy that’s close to recession, but has actually proven bad for markets.

Stocks plunged earlier this month after the closely watched November jobs report showed a resilient labor market. They fell again on Thursday when weekly numbers showed the number of Americans filing for unemployment benefits fell, indicating a still-tight labor market.

That’s because in this good-is-bad economy, inflation and unemployment have an opposite relationship — higher wages mean higher inflation as companies pass on higher costs by raising the price of goods. Investors worry that a strong jobs report could fuel Fed officials to accelerate their rate increase campaign.

At the same time, if jobs fall precipitously, the economy could plunge into a deep recession — that’s not a boon for markets either.

Investors are hoping for a Goldilocks situation where unemployment falls just enough to convince the Fed that its rate hikes have cooled the labor market enough to end hikes but not enough to cripple the economy. That’s a very narrow path to land on.

What the Fed wants: The Federal Reserve released its economic forecast on Wednesday, predicting that the rate of unemployment would increase to 4.6% by the end of next year, up from 3.7% today. The unemployment rate has never risen that much outside of a recession and those numbers mean about 2 million Americans would have to lose their jobs (or enter the workforce– which is exceedingly unlikely).

Fed Chair Jerome Powell did not mince words last week when he said that the strong job market is exceedingly responsible for inflation and will have to weaken before rate hikes end. “There’s an imbalance in the labor market between supply and demand,” he said, adding that it will take a “substantial period” to fix that imbalance.

“Without price stability, the economy doesn’t work for anyone,” Powell said Wednesday.

That path to the Fed’s 2% inflation target is through the jobs market. “There will be some softening in labor market conditions,” Powell said. “And I wish there were a completely painless way to restore price stability. There isn’t. And this is the best we can do.”

What might happen: “Boy the Fed is really committed to this put us in a high unemployment recession thing,” Jon Stewart, former host of The Daily Show, tweeted after Wednesday’s meeting.

It’s possible that he’s correct — but some economists still think there’s hope that if employment softens in the first half of next year a Fed pivot could come quickly and with it, recovery.

“Employment has yet to soften notably, but I think the jobs data is likely to deteriorate meaningfully and quickly,” said finance professor Jeremy Siegel of The Wharton School of the University of Pennsylvania in his weekly commentary for WisdomTree last week.

Powell expressed optimism on Wednesday that a soft landing was still possible and that the labor market was tight enough to withstand an increase in unemployment without snowballing into a recession. Investors, meanwhile, will be watching jobs numbers very closely.

Sam Bankman-Fried to appear in court Monday to drop extradition fight

Former FTX CEO Sam Bankman-Fried is expected to appear in a Bahamas court on Monday to reverse his decision to contest extradition to the US, a person familiar with the matter told CNN.

Bankman-Fried is expected to agree to extradition to the US, the person said. Reuters first reported thank Bankman-Fried would withdraw his extradition fight Monday, reports my colleague Kara Scannell.

It remains unclear what time Bankman-Fried will appear in court. If he waives his extradition, he would likely return to the United States quickly. Once in the states, he will appear before a US judge for an arraignment and bail hearing.

CNN has reached out to Bankman-Fried’s lawyers, and the Bahamas Attorney General.

Last Tuesday, federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.

On top of that, US market regulators filed civil lawsuits accusing Bankman-Fried of defrauding investors and customers, saying he “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”

Bankman-Fried remains in the Bahamas, where FTX was based, and was arrested last Monday night. He was arraigned Tuesday, and a Bahamian judge denied his request for bail, saying that he posed a flight risk. His extradition to the United States could take weeks.

Stores are drowning in merchandise this holiday season. That means big sales are coming

Stores are drowning in a glut of merchandise this holiday season, keeping the discounts fast and furious in the runup to Christmas.

And the deals are only getting juicier, reports my colleague Parija Kavilanz.

The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. With Christmas Day falling on a Sunday, and Christmas Eve falling on the preceding Saturday, Super Saturday this year is on Dec. 17th. More than 158 million consumers are estimated to shop that day, according to the National Retail Federation.

Shoppers have only completed half their gift purchasing so far, the NRF estimates. With less than a week to go until Christmas Day, and drop-dead shipping deadlines approaching, people have a lot more buying to do.

It’s also costly for retailers to sit on an oversupply of merchandise for too long. Retailers who store merchandise in their own warehouse and distribution centers have a finite amount of space to work with, with some wiggle room to accommodate excess inventory. But costs add up if more space is needed for a protracted glut that they can’t quickly clear out.

Also, unsold products lose value over time. That’s especially true with fashion clothing as savvy shoppers won’t buy last year’s style if the trend has passed. Stores are then forced to heavily discount, which impacts profitability.

Well ahead of the final full weekend before Christmas, stores this year were already offering discounts of 50% to 60% off, and tacking on free shipping for online orders.

“I’ve studied the holiday season for 20 years and haven’t seen discounting so dramatic,” said Ross Steinman, professor of consumer behavior at Widener University in Chester, Pennsylvania.

“Retailers are very nervous,” he said. “The clock is ticking and they know they have to maximize every opportunity now to get consumers to make purchases.”

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