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For investors in the stock market, this falling hiring rate is arguably a positive sign in a growing economy because it suggests companies are getting more productivity out of their workforces — which is bullish for profit margins.

The quits rate has followed a similar trajectory as the hiring rate.

Earlier in the recovery, the abundance of job opportunities encouraged many workers to quit their jobs and pursue new opportunities. The monthly quits rate peaked at an unprecedented 3% in April 2022.

As of November, the quits rate was 1.9%, which is below even prepandemic levels.

A low quits rate could mean more people are satisfied with their job. It could also mean workers have fewer outside job opportunities.

For investors, this could be a positive. The longer a worker stays in a job, the less time they spend on training and the more familiar they become with the work. This suggests they are becoming increasingly productive, which again is bullish for profit margins.

Home affordability

Mortgage rates used to be very low. For much of 2020 and 2021, the average 30-year fixed mortgage rate was below 3%.

With tighter monetary policy and the improving outlook for economic growth came higher interest rates, including higher mortgage rates. In recent months, the average 30-year fixed mortgage rate has hovered around 7%.

To better understand what this means for homebuyers, Bloomberg’s Michael McDonough charted the trajectory of monthly mortgage payments based on reported mortgage rates. For a $500,000 home, a new homebuyer is paying about $2,100 a month today versus about $980 at the 2020 low.

Among other things, the U.S. housing market faces supply challenges. But affordability has certainly played a role in home sales activity cooling from once-hot levels.

Household finances

There are countless ways to measure the health of household finances, which continue to be historically strong.

At the onset of the pandemic, consumers had limited opportunities to spend. Yet they continued to get paid. So during this period, many paid down their debts while accumulating mountains of excess cash savings.

But over the past three years, debt levels have increased and excess savings have largely been spent.

One metric that captures a lot of narratives is household debt service payments as a percent of disposable personal income. It was at record lows in 2021 but has mostly trended higher ever since.

In terms of indicators of financial distress, New York Fed data shows that about 3.5% of outstanding debt is in some stage of delinquency. This is up from 2022 lows.

Like most other metrics, these continue to reflect a consumer that’s in better financial shape than they were before the pandemic. However, the data suggests they don’t have the financial flexibility they once did.

The big picture

I can’t reiterate enough that the data we’ve reviewed hasn’t gone from good to bad.

Rather, it’s gone from very hot to something more — dare I say — normal.

And normal continues to be characterized by economic growth, which is fueling earnings growth, which in turn has supported stock prices and sent the net worth of households to record highs.

Review of the macro crosscurrents

There were several notable data points and macroeconomic developments since our last review:

The labor market continues to add jobs. According to the BLS’s Employment Situation report released Friday, U.S. employers added 256,000 jobs in December. The report reflected the 48th straight month of gains, reaffirming an economy with growing demand for labor.

Total payroll employment is at a record 159.5 million jobs, up 7.2 million from the prepandemic high.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — ticked down to 4.1% during the month. While it continues to hover near 50-year lows, the metric is near its highest level since October 2021.

While the major metrics continue to reflect job growth and low unemployment, the labor market isn’t as hot as it used to be.

Wage growth ticks lower. Average hourly earnings rose by 0.28% month-over-month in December, down from the 0.36% pace in November. On a year-over-year basis, this metric is up 3.9%.

Job openings rise. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 8.1 million job openings in November, up from 7.8 million in October.

During the period, there were 7.14 million unemployed people — meaning there were 1.13 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor. However, this metric has returned to prepandemic levels.

Layoffs remain depressed, hiring remains firm. Employers laid off 1.77 million people in November. While challenging for all those affected, this figure represents just 1.1% of total employment. This metric remains just below pre-pandemic levels.

Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.27 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — has been trending lower, which could be a sign of trouble to come in the labor market.

People are quitting less. In November, 3.06 million workers quit their jobs. This represents 1.9% of the workforce. The rate continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job; workers have fewer outside job opportunities; wage growth is cooling; productivity will improve as fewer people are entering new unfamiliar roles.

Job switchers still get better pay. According to ADP, which tracks private payrolls and employs a different methodology than the BLS, annual pay growth in December for people who changed jobs was up 7.1% from a year ago. For those who stayed at their job, pay growth was 4.6%

Unemployment claims fall. Initial claims for unemployment benefits fell to 201,000 during the week ending January 4, down from 211,000 the week prior. This metric continues to be at levels historically associated with economic growth.

Consumer vibes deteriorate. From the University of Michigan’s January Surveys of Consumers: "Consumer sentiment was essentially unchanged in January, inching down less than one index point from December, well within the margin of error. Assessments of personal finances improved about 5%, while the economic outlook fell back 7% for the short run and 5% for the long run. January’s divergence in views of the present and the future reflects easing concerns over the current cost of living this month, but surging worries over the future path of inflation."

Politics clearly plays a role in peoples’ perception of the economy. Notably, expectations for inflation appear to be a partisan matter.

Card spending data is holding up. From JPMorgan: "As of 31 Dec 2024, our Chase Consumer Card spending data (unadjusted) was 0.1% above the same day last year. Based on the Chase Consumer Card data through 31 Dec 2024, our estimate of the US Census December control measure of retail sales m/m is 0.61%."

From BofA: "2024 was a solid year for consumers and they finished the year strong, with December card spending per household up 2.2% year-over-year (YoY), according to Bank of America aggregated credit and debit card data. Seasonally-adjusted card spending per household rose 0.7% month-over-month (MoM)."

Gas prices flat. From AAA: "The national average for a gallon of gas is stuck in neutral and has not budged since last week to stay at $3.06. …According to new data from the Energy Information Administration (EIA), gasoline demand rose from 8.16 million b/d last week to 8.48. Meanwhile, total domestic gasoline stocks soared from 231.4 million barrels to 237.7, while gasoline production decreased last week, averaging 8.9 million barrels daily."

Mortgage rates tick higher. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.93%, up from 6.91% last week. From Freddie Mac: "In the first full week of the new year, the 30-year fixed-rate mortgage remained elevated at just under 7 percent. The continued strength of the economy has put upward pressure on mortgage rates, and along with high home prices, continues to impact housing affordability. The lack of entry-level supply also remains an issue, especially for those looking to become first-time homeowners."

There are 147 million housing units in the U.S., of which 86.6 million are owner-occupied and 34 million (or 40%) of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.

Business investment activity trends at record levels. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — rose 0.4% to $74.1 billion in November.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road. While the growth rate has leveled off a bit, they continue to signal economic strength in the months to come.

Services survey improves. S&P Global’s U.S. Services PMI rose in December: "Business activity in the vast services economy surged higher in the closing month of 2024 on fuller order books and rising optimism about prospects for the year ahead. Expectations of faster growth in the new year are based the anticipation of more business-friendly policies from the incoming Trump administration, including favorable tax and regulatory environments alongside protectionism via tariffs. The improved performance of the service sector has more than offset a continued drag on the economy from the manufacturing sector, meaning the survey data point to another robust expansion of the economy in the fourth quarter after the 3.1% GDP growth seen in the third quarter."

The ISM Services PMI also rose in December.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

Supply chain pressures remain loose. The New York Fed’s Global Supply Chain Pressure Index — a composite of various supply chain indicators — ticked higher in December and remains near historically normal levels. It's way down from its December 2021 supply chain crisis high.

Offices remain relatively empty. From Kastle Systems: "Most workers stayed away from the office during the holidays, as average daily occupancy was only 16.1% on the Thursday and Friday after Christmas Day. Peak day office occupancy was on Monday (12/30) at 24.9%, but then dropped again to 19.3% on Tuesday (12/31)."

The entrepreneurial spirit is alive. Small business applications are up and remain well above prepandemic levels. From the Census Bureau: "December 2024 Business Applications were 457,544, up 1.5% (seasonally adjusted) from November. Of those, 156,331 were High-Propensity Business Applications."

Near-term GDP growth estimates remain positive. The Atlanta Fed’s GDPNow model sees real GDP growth climbing at a 2.7% rate in Q4.

Putting it all together

The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand for goods and services is positive, and the economy continues to grow. At the same time, economic growth has normalized from much hotter levels earlier in the cycle. The economy is less "coiled" these days as major tailwinds like excess job openings have faded.

To be clear: The economy remains very healthy, supported by strong consumer and business balance sheets. Job creation remains positive. And the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.

We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened.

For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak long-term investors can expect to continue.

A version of this post originally appeared on TKer.co