The Market Today
Jobs Data Discouraging Enough to Boost Stimulus Odds
by Craig Dismuke, Dudley Carter
Disappointing Jobs Data Raise Likelihood of Fiscal Stimulus and Tweaks to Monetary Policy: The economy added a disappointing 245k payrolls in November, the slowest pace of monthly recovery since June. Part of the weakness was a 99k decline in government jobs which stemmed from a 93k drop in temporary census workers. The private sector recovered just 344k jobs, also the weakest rate of recovery since June. The details of the reports show a broadly-slowing pace of recovery along with the more acute impacts of the virus re-acceleration. The hardest-hit sector during the pandemic, the leisure sector, added back just 31k payrolls as mobility and travel restrictions have been reimplemented. After losing 8.3mm jobs from February to April, the sector has recovered only 4.8 million of those and the pace of recovery has now slowed to a crawl. More evidence of pandemic impact, the retail sector shed 35k jobs while the transportation sector added 145k, clear evidence of the changes in holiday shopping this year. Restaurants, which added 192k jobs in October as people began moving about, lost 17k workers in November. The payroll data, in summary, show a slowing pace of job recovery while the number of jobs outstanding remains 9.8 million below the February peak, and the direct effects of the pandemic’s re-acceleration.
Unemployment Rate Drops as People Leave Labor Force: In the Household Report, the unemployment rate dropped from 6.88% to 6.69% despite the number of employed persons declining in the report. Driving the decline was a 326k drop in the number of unemployed which corresponded with 400k people leaving the labor force. As people left the labor force, the participation rate dropped from 61.7% to 61.5%. Also discouraging, the number of people reporting as long-term unemployed rose another 385k to 3.94mm while those unemployed-not-temporarily rose 214k to 4.7mm.
Bottom Line: The November jobs data, in summary, show: 1) a slowing pace of job recovery while the number of jobs outstanding remains 9.8 million below the February peak, and 2) the direct effects of the pandemic’s re-acceleration. If there is one takeaway from the numbers, it is that the weak report will increase the odds of a bipartisan agreement on stimulus and may even move the needle on the Fed’s decision with regards to asset purchases at their December 16 meeting.
Factory Orders and Final Capital Goods Revision: At 9:00 a.m. CT, the October Factory Orders report is expected to show a 1.1% gain in core orders.
Fedspeak: Chicago Bank President Evans will speak at 8:00 a.m. CT. Relatively new FOMC Governor Michelle Bowman will speak on community banking and fintech at 9:00 a.m. Minneapolis Bank President Kashkari will speak at 10:00 a.m.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Stimulus Headlines: Thursday’s headlines showed lawmakers in Washington continued to work to reach an agreement to provide a slowing recovery another round of stimulus and address some areas of aid created by the CARES Act that are set to expire later this month. House Speaker Pelosi said she was optimistic that Congress could reach an agreement on stimulus as well as a broader spending bill before current spending authority expires on December 10. Senate Majority Leader McConnell indicated a deal was within reach and both sides should move forward on topics where there is agreement. However, Minority Leader Schumer said McConnell “does not seem inclined to compromise.” Several other senators from both sides of the aisle showed support for the recent bipartisan proposal for $908 billion in additional aid. President Trump acknowledged that the sides seemed to be getting close and said he would sign a deal if Congress is able to make one.
Monitoring the Virus Headlines: There were several notable virus-related headlines Thursday, but the one that got the market’s attention was a report related to Pfizer’s vaccine production. The S&P 500 fell into negative territory from a new record after the Wall Street Journal said the company had halved its 2020 production target because of issues with the supply chain. A spokesperson for Pfizer later confirmed that adjustments had been made, but said the company still expects to produce 1.3 billion doses by the end of next year. Related to restrictions, France plans to allow the current lockdown to expire on December 17 while Italy’s prime minister said new restrictions will be needed for the period of December 21 to January 6. Among the restrictions, the current curfew will be extended, ski lifts will be closed, and cruises will be prohibited. In the U.S., California’s Governor made headlines by announcing plans for new three-week stay-at-home orders across the state once regional ICU capacity falls below 15%. While less severe than the first order issued in response to the initial outbreak, most shops will be limited to 20% capacity while other venues, such as salons, theaters, playgrounds, and zoos; will be closed. The governor said he expects four of the state’s five geographic regions to cross the threshold and activate the order in a day or two.
S&P 500 Slipped from a New Record After Disappointing Pfizer Headline: Stocks hadn’t moved much away from their opening levels when all was said and done Thursday but Treasury yields drifted lower, reversing Wednesday’s rise that was spurred by stimulus talks resuming. Renewed interest in Washington for another stimulus package remained a focus for investors as top leaders from both parties continued discussions and more lawmakers came out in favor of the nearly $1 trillion bipartisan bill proposed earlier in the week. President Trump said negotiators seemed to be getting close to an agreement and indicated that he would sign a deal if Congress reached one. The S&P 500 was positive for most of the session but tumbled from daily highs after Dow Jones reported Pfizer had cut its target for vaccine distribution this year in half. The S&P 500 fell from a new record level to end down less than 0.1% on the day. The Dow managed a 0.3% gain while the Nasdaq notched a new all-time high with its 0.1% improvement.
New Social Restrictions Likely to Weigh on Recovery: Optimism was also kept in check by continued concerns about the impact of new restrictions both here and abroad as governments work to protect healthcare systems from being overwhelmed. The Governor of California and the Prime Minister of Italy announced new restrictions in response to rising cases and hospitalizations. Despite an upbeat update on weekly jobless claims and nearly as-expected ISM Services Index, Treasury yields declined amid the uncertainty and in front of this morning’s nonfarm payroll report for November. The 2-year yield dipped 0.8 bps to 0.15%, the 5-year yield fell 1.9 bps to 0.40%, and the 10-year yield shed 2.5 bps to 0.91%.
Treasury Yields Have Somewhat Odd Response to Broadly Softer Payroll Data: Despite expectations for the BLS to show that job growth slowed further in November, U.S. futures and Treasury yields had both moved higher ahead of the report’s release. Futures contracts on the major U.S. indices were up between 0.3% and 0.4% in the minutes before the announcement and the 10-year Treasury yield had added 1.7 bps to 0.92%. Equities elsewhere around the world were also generally improved although gains were relatively modest. Despite the uptick in U.S. yields, sovereign yields in Europe had inched lower. A report released overnight indicated growing support among officials for a 12-month extension of the European Central Bank’s (ECB) Pandemic Emergency Purchase Program (PEPP) at next week’s meeting. Many had expected a six-month extension to be announced, adding to uncertainty around how the ECB will respond to signs of a sharp slowing of the recovery since most of the continent returned to a partial lockdown in October. There is also debate about a possible increase of the size of the asset purchase program. After a small flash crash down to 0.898% as headline payroll figures hit the Bloomberg terminals, the 10-year yield reversed sharply back up to a new daily high above 0.94%, a potential indication markets believe the broadly softer employment report could help nudge lawmakers closer to a compromise stimulus agreement.
Markit PMI Improves, ISM Services Dips in November amid Apparent Virus Disruption: The ISM’s Services Index dropped from 56.6 to 55.9 in November, nearly matching the 55.8 expected by Bloomberg economists. The decline was driven by softer current production (-3.2 to 58.0) and new orders (-1.6 to 57.2) that offset an encouraging recovery for employment (+1.4 to 51.5) after a drop in October. The other details of the report were mixed and the comments section indicated the latest wave of the virus was having some impact on activity across multiple sectors. Separately, the Markit report was a bit more upbeat, with a 0.7-point revision to the initial estimate pushing the services index up to its highest level since March 2015.
Senate Confirms Waller to Fill Fed Board Vacancy: In a bit of Fed news, the Senate confirmed Christopher Waller, one of President Trump’s two nominees, to fill a vacant seat on the Federal Reserve Board of Governor. Mr. Waller, whose term will run until January 2030, is currently the Director of Research at the St. Louis Federal Reserve Bank and is considered to have policy views that are closely aligned with St. Louis Fed President Bullard, who was also once of Waller’s students. Prior to joining the Fed, Waller headed the Economics Department at Notre Dame. President Trump’s other nominee, Judy Shelton, is considered a more controversial pick and was initially blocked for a Senate vote.