Inflation eased, labour softened, and Ford pivoted
U.S. inflation numbers for November’s delayed Consumer Price Index report delivered a clear surprise. Headline inflation slowed to 2.7% year over year, well below expectations, while core inflation (headline inflation minus volatile items, such as food and energy) dropped to 2.6%, its lowest level since early 2021. On a shorter-term basis, inflation momentum has cooled even faster, with three-month annualized readings hovering close to the U.S. Federal Reserve’s target. Shelter inflation continues to decelerate, energy prices are rolling over, and goods inflation remains contained. That said, this was not a clean report. October data was missing, due to the government shutdown, forcing the Bureau of Labor Statistics to rely partly on non-survey inputs.
Markets rightly treated the numbers with caution, but the direction still matters. Inflation is easing faster than most expected, and that reinforces the idea that policy is no longer restrictive. However, labour market data complicates the picture. Payroll growth for November beat expectations at 64,000 new jobs, driven by private hiring, but the unemployment rate jumped to 4.6%, the highest in four years. Under the surface, quality deteriorated; full-time employment fell sharply, while part-time work surged to a record.
The number of Americans holding multiple jobs also rose to an all-time high. Wage growth slowed to 3.5%, and revisions to prior months remained negative. In short, inflation is falling faster than expected, while the labour market is softening in less market-friendly ways. That combination supports a central bank rate-cutting policy, which explains why markets are increasingly comfortable with bad news.
Ford’s decision to shut down its newly built electric vehicle (EV) battery plant in Kentucky and lay off 1,600 workers is a case study in capital misallocation being corrected in real time. After losing roughly $13 billion on EVs since 2023, Ford is abandoning large-scale EV battery production and pivoting the facility toward energy storage systems for data centres and utilities.
Demand for grid-scale power, data centres and AI infrastructure is tangible and immediate. Demand for mass-market EVs remains uncertain, can dilute profit margins and relies on government policy. For now, investors continue to reward companies tied to AI infrastructure and power demand, while penalizing capital-intensive narratives that fail to convert investment into cash flow.
After a rough, technology-led sell-off earlier in the week, markets rebounded sharply on Thursday. Computer memory chip maker Micron’s share price surged by 11% after guiding current-quarter profits to almost 80% above consensus, driven by relentless demand for memory chips used in data centres. The move spilled over into the broader memory storage sector and stabilized sentiment across the technology industry. While sectors that are overly popular with investors can unwind quickly, earnings still matter. Quality growth is being differentiated from speculative growth.
As we approach 2026, we wish you joyful holidays filled with warmth and happiness and look forward to reconnecting with you when our commentary returns on January 9.
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