Jobs report shows weakening trend heading into holidays, increasing the case for stimulus
Food Bank for New York City distributes turkeys and Thanksgiving fixings with support from Stop & Shop and WBLS’ The Steve Harvey Morning Show on November 16, 2020 in New York City.
Michael Loccisano | Getty Images Entertainment | Getty Images
Job growth slowed significantly in November and looks set to decline even more, as the spreading pandemic hits all sorts of economic activity and results in more shutdowns.
The creation of just 245,000 payrolls, about 200,000 below forecast, signals a decline in the labor market that economists say could result in a negative number for December. The report also adds to the case for fiscal stimulus to bridge the economy to a time next year, when vaccine distribution is expected to allow a return to a more normal environment, economists said.
“This is pretty poor overall. It’s really hard to find anything good to say about it, to be honest. Payroll growth came in weaker than expected, significantly weaker than any time since the recovery began,” said Tom Simons, money market economist at Jefferies. “Everything was pointing to job growth slowing and of course, it’s related to the surge in Covid. The hiring in retail and hospitality was very weak here and that’s signs of Covid and social distancing rules keeping the recovery from expanding … On the plus side, average hourly wages are up 0.3%.”
Stocks remained positive after the report, and Treasury yields rose. Yields move opposite price.
Some bond market pros had expected an even worse job picture in November, and the market appears to have latched onto any positives, including the wage data. The report follows revised job gains of 610,000 in October.
“The details are not so dire. Wage growth still persists. This is an event risk we have passed, and the broader theme is a bear steepener,” said Ian Lyngen, head of U.S. rates strategy at BMO. The so-called steepener describes the rise in long-end yields versus the short end.
The 10-year yield rose more than 4 basis points Friday and was at 0.975%, above the recent high closing level from Nov. 10. Holding above 0.96% could signal a quick move to 1%, traders say.
“I think it makes a better case for stimulus,” said Lyngen.
Congress has been discussing a compromise approach to a stimulus package this week, after congressional leaders and the White House failed for months to reach a deal. Stimulus talk has been a catalyst for higher rates since more stimulus means more spending, and more debt.
Possible decline ahead
Economists expect a weak period for the labor market with potential job declines in December, as seasonal retail jobs failed to materialize this year and states shut more activities. California, for instance, announced new restrictions Thursday, which shut bars and hair salons and require residents of some hard-hit areas to stay at home.
The jobs report underscored trends that have persisted through the pandemic. Employment in transportation and warehousing rose by 145,000 in November. At the same time, employment declined by 35,000 in retail, reflecting less seasonal hiring and the shift to online shopping during the holiday period.
Leisure and hospitality gained 31,000 but is still 3.4 million below February’s level. Health care added 46,000 jobs, and government payrolls declined by 99,000 as temporary Census workers left jobs.
The unemployment rate edged down to 6.7% from 6.9% in November.
“The unemployment rate fell for the wrong reason — the labor force fell … 245,000 is not a significant gain, given how much we’re still in the hole by 9.8 million jobs,” said Grant Thornton chief economist Diane Swonk. “We’ll be negative next month. We’ll be in the red next month, especially given the rise in the number of layoffs in retail and leisure and hospitality.”
Economists have expected a softer jobs market into the beginning of the year because of the record spread of the pandemic across the U.S.
Sign for stimulus
Swonk said the economy needs support from another stimulus package, and the jobs report highlights that need. She said the partisan divide in Congress stymied the chances for stimulus.
“The moderates are now moving, and we’re seeing a better chance for stimulus,” she said.
BlackRock’s head of fixed income Rick Rieder said there are trends that show payroll growth will improve, including the rising wages.
But he also said it’s likely in 2021 that the rate of economic growth will outpace the labor market recovery.
“This year’s monetary and fiscal stimulus, as well as likely stimulus in the coming months, has gone a long way toward protecting both businesses and household income from much more dire outcomes,” he noted.
The number of people on temporary layoff in November dropped by 441,000 to 2.8 million. The number of long-term unemployed , those jobless for 27 weeks or more, increased by 385,000 to 3.7 million, equal to 36.9% of the total unemployed.
“If you look at the number of unemployed 27 weeks or longer, we’re looking at the point where they’re migrating into the dangerous zone,” said Drew Matus, chief market strategist at MetLife Investment Management. He said the longer people are unemployed, the more unemployable they become. “Before this, we were in really pretty good shape.”
Matus said the labor market is at risk from further shutdowns, as the vaccine rollout is awaited.
“If you know the vaccine is coming, the more rational response is to actually shut down,” he said. “You know when you open again, it will be a more normal environment and you know how to exercise business acumen in that environment … It’s more likely states will move to shutdown and that creates more risk in the labor market.”
Matus said how much the economy is supported depends on how the stimulus is structured, and a rapidly dispensed vaccine would be the best help.
“There’s something bad happening, and it’s kind of funny to talk about 245,000 jobs added as something bad. This isn’t going to do it. This means we’re treading water, and there’s no lifeboat on the horizon,” he said.