The Market Today

November Jobs Data Disappoint, Reflect Ever-Tighter Labor Market

by Craig Dismuke, Dudley Carter


Establishment Report Shows Disappointing Pace of Job Recovery Before Omicron: The U.S. economy added just 210k nonfarm payrolls in November, disappointing expectations for a 550k gain.  The data covers a period prior to the emergence of the Omicron variant and marks the weakest rate of job recovery since April.  Private payrolls grew 235k while government payrolls fell 25k.  Education payrolls declined another 18k, continuing to point to a longer-lasting issue for the sector. A second factor weighing on payroll recovery, the typical influx of workers in November was smaller this year.  There are, perhaps, larger hurdles to short-term hiring in today’s health environment. The recovery in hard-hit service sectors slowed in November.  The leisure sector only added 23k payrolls and restaurant workers only increased 11k.  Retail was also particularly weak, losing another 20k jobs.

Household Report Tells Different Story; Unemployment Down to 4.2%: The Household report told a different story than the Establishment data.  The unemployment rate fell from 4.60% to 4.24% as 1.14mm more people reported as employed, 594k more people reported as being in the labor force (the largest monthly gain since October 2020), and 542k fewer people reported as unemployed. The household report tends to be more volatile than the establishment data.  The month-over-month noise between the two data series has been particularly loud during the pandemic.  Both reports continue to tell a similar story when it comes to the broad recovery from the pandemic.  The establishment report shows 3.9mm jobs still lost while the household report shows 3.6mm still lost. With the influx of persons in the labor force, the participation rate increase from 61.6% to 61.8%.

Hourly Earnings and Hours Worked Show High Labor Demand: Average hourly earnings rose 0.3% MoM in November, keeping the year-over-year rate unchanged at 4.8%.  Average weekly hours worked increased back to 34.8, an historically high level.  The leisure sector continued to show the most wage pressure with hourly earnings up another 0.8%, 12.4% on a year-over-year basis.

Services PMIs and Factory Orders Report: At 8:45 a.m. CT, the November final Markit Services PMI is expected to be unrevised at 57.0.  The ISM Services Index (9:00 a.m.) is expected to pull back from 66.7 to 65.0.  The underlying metrics of supplier deliveries and prices paid, which both declined in the ISM Manufacturing index, will be key to watch.  The October Factory Orders report (9:00 a.m.) is expected to show continued traction for core durable goods demand.


More Fed Officials Show Support for Taper Acceleration: Atlanta Fed Bank President Bostic said Thursday that it “would be in our interest” to accelerate the tapering process so that purchases cease around the end of the first quarter instead of by mid-June as originally planned. Bostic said inflation is a “source of concern” and noted that if current levels don’t begin to subside early in 2022, “It may be appropriate for us to pull forward the liftoff. If so, we need to have that optionality.” Fed President Mester is “very open” to accelerating the process so “that if we need to raise rates a couple of times next year we’re able to do that.” Fed Governor Quarles said he’s “certainly supportive” of a quicker taper and San Francisco President Daly said a faster wind down may be appropriate. Richmond Fed President Barkin indicated he currently supports the plan as originally laid out.

Government Shutdown Averted: Congress passed a stopgap funding bill Thursday to prevent a partial government shutdown at midnight and keep the government open through February 18. The House approved the bill on a 221-212 vote while the Senate favored the legislation 69-28. Some Republican Senators had indicated they would attempt to delay the bill to block funding for the Biden administration’s vaccine mandate. An amendment to do so failed prior to the funding bill’s passage.


Another Market Reversal: The recent back and forth in markets, initially spurred by Omicron’s emergence and further stoked by Fed Chair Powell’s public support of a faster taper, continued on Thursday. After selling off into Wednesday’s close, U.S. equities rose sharply in the first half of Thursday’s session, consolidating the accumulated gains in the afternoon to post a solid daily recovery. The Dow rallied 1.8% while the S&P 500 rebounded 1.4%. The Nasdaq added a smaller 0.8%. Oil prices gained more than 1% following two days of declines, recovering from a 4.8% decline early Thursday morning after OPEC said it plans to move forward with another 400k-barrels-per-day production increase in January. Supporting the rebound, the group said it retains the option to adjust production at any time and on short notice, not just at the next scheduled meeting which is customary, if the outlook changes. Treasury yields also reversed the prior day’s trend. After another solid weekly jobless claims report and with more Fed officials joining Powell in a public show of support for shortening the taper timeline, the curve shifted higher and flatter. The 2-year yield rose 6.1 bps to 0.61%, the 5-year yield added 7.1 bps to 1.21%, and the 10-year yield added 4.1 bps to 1.44%. The spread between the 2-year and 10-year yields tightened to the lowest level since January 4.

Stock futures were little changed overnight Friday but tilting into positive territory amid mixed performances for foreign exchanges. The Treasury curve continued to flatten ahead of this morning’s jobs report. At 7:20 a.m. CT, the 2-year yield had added 1.4 bps to 0.627%, roughly a basis point below its cycle peak, while the 10-year yield had declined 2.2 bps to 1.42%, near a two-month low from Wednesday. The 79.2-bps spread between the two yields marks a new low for 2021. After swinging about initially after the noisy report, Treasury yields had settled back close to their pre-release levels.

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President Biden Announces Plans to Combat Winter COVID-19 Risk: President Biden announced his plans for attempting to limit a winter surge in cases as the new Omicron variant continues to pop up in more states across the country. Increasing vaccination rates remains a key pillar of the administration’s strategy. Additionally, President Biden announced that international travelers must provide a negative test within 24 hours of their flight, more stringent than the three-day requirement currently in place. The TSA’s mask mandate for air travel and other modes of public transit will be extended through March 18. And the Biden administration will require private insurers to cover the cost of at-home tests beginning in mid-January.

Germany Moves to Mandate Vaccines and Limit Activities of the Unvaccinated: Germany’s new measures to slow its latest virus wave were more stringent than President Biden’s plans for the U.S. Alongside her successor, Olaf Scholz, outgoing Chancellor Merkel announced plans to make vaccines mandatory for all Germans and new restrictions for those who have yet to be inoculated. Scholz said he expects parliament will vote to back the plan for mandatory vaccines. According to news reports, the new restrictions on the unvaccinated will limit access to restaurants, theatres, and other non-essential shops to those have received a vaccine or have recovered from the virus. The size of public events will also be limited and regional governments will be able to take additional steps as their local situations require.

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