Job growth is at least good, but maybe great?
By Xavier Charles Sottile- Recession odds over the next year drop to 40%
- Despite good job growth, GDP growth is expected to be anemic
Growth Report
Job growth keeps on chugging
Non-farm payroll growth came in at 199,000 in November, slightly about Kalshi’s projection of 188,000 and the consensus 180,000. The unemployment rate ticked down to 3.7% from 3.9%, a fair bit lower than expected. The household survey that underlies the unemployment rate estimated a gargantuan increase in jobs (747,000), but the household survey is known for its volatility. For the fourth quarter, GDP expectations on Kalshi have fallen to 1.5% compared to 1.81% last week. The Atlanta Fed’s GDP Nowcast fell from 1.8% to a dismal 1.2% since last week. Bloomberg’s GDP Nowcast was even more dramatic, estimating that GDP growth would be below zero for the last couple of weeks before slightly moving into the positive this week. Recession odds fell to their near-lowest so far, at 40%.
Odds of a recession (two consecutive quarters of negative GDP growth) by the end of 2024 is forecasted to be 40%
Inflation Report
Fed’s preferred metric now at 2% target
In November, Kalshi expects headline CPI to be similarly less than 0.1% at 0.06% but core inflation to be a healthy bit higher, at 0.30%; year-over-year, this would be still well over the Fed’s supposed 2% target at 3.06% headline and 3.97% core. The headline number is no surprise given the dramatic drop in gas prices we’ve seen over the last few months; this week, gas prices hit their lowest this year (today’s average regular gas price was only $3.185). Next year, Kalshi traders are projecting headline inflation to be an astonishing 1.85% and core 2.93%
2024 US annual inflation is forecasted to be 1.82%
Fed Fund Rate Report
No hike expected until a cut next summer
The low inflation print resulted in Kalshi traders moving up their guess of when the Fed will cut from next July, to next June, to now May. This is the third month in a row that this date has moved up, with traders originally projecting a cut next July after last month’s meeting, and one next September before that. Kalshi traders estimate a high probability (86%) of the Fed cutting rates by the end of next year, down from 92% last week.
The probability of a rate cut by the end of 2024 is 86%
About the Kalshi Whisper
The “whisper” number is a private, unofficial number that is circulated by bank analysts to their clients, including high net-worth individuals, Wall Street traders and hedge funds during the blackout period after the official consensus is published and before data is released. Analysts and economists at banks continue to revise their estimates during the blackout period, but share their new forecasts with a limited clientele. They call these late forecasts “whispers” because they’re not public and not broadly accessible. Kalshi forecasts serve as a more accessible market-driven “whisper” during the blackout period, before the release tomorrow.
The Kalshi Whisper comes from market prices based on CPI, core CPI, target fed funds markets and other relevant Kalshi markets. Markets are purely directional: traders purchase binary contracts on a central-limit order book that pay out based on conditions such as “CPI inflation exceeds 0.2% in November 2022”. From these contracts, one can simply extract the probability of any given release. For example, the probability of CPI inflation equaling 0.2% is equal to the price that CPI inflation exceeds 0.1% subtracted by the price of CPI inflation exceeding 0.2%. Current projections are based on the last traded price for contracts. Federal funds rate projections come from binary markets that pay out on the basis of the upper bound of the Federal Funds target range.
Kalshi markets have a history of accuracy. The median Fed projections have correctly identified the size of the rate hike for each meeting since the first Kalshi Fed projection in July 2021. The median CPI forecasts have been equally accurate or more accurate than the Bloomberg economist survey and the Cleveland Fed Nowcast in 11 of the last 13 months.
Disclaimers
This communication is provided for information purposes only. Please read Kalshi research reports related to its contents for more information, including important disclosures.
This communication has been prepared based upon information, including market prices, data, and other information, from sources believed to be reliable, but Kalshi does not warrant its completeness or accuracy except with respect to any disclosures relative to Kalshi and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication.
The opinions and estimates described herein constitute a reasonable judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Kalshi’s research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, Kalshi may be restricted from updating information contained in this communication for regulatory or other reasons.
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