INDICATOR: November Employment Report and October Trade Deficit
KEY DATA: Payrolls: +245,000; Private: +344,000; Retail: -34,700; Unemployment Rate: 6.7% (-0.2 percentage point); Wages: +0.3%/ Deficit: +$1bil.; Exports: +2.2%; Imports: +2.1%
IN A NUTSHELL: “Job growth is slowing and we have yet to see the full impact of the virus surge and restrictions.”
WHAT IT MEANS: Could it be? Yes, it could. Something’s coming, something (not) good. (Apologies to West Side Story and Stephen Sondheim.) It looks like the economic slowdown is beginning to show in the economic data. Total payroll increases for November were disappointing. As usual, the headline number was somewhat misleading. There were 93,000 temporary decennial Census workers let go and you cannot seasonally adjust for something that happens once a decade. Private sector job gains were not nearly as soft, which is good news, at least for now. As for the details, they reflect the changes going on in the economy. Retail employment was down sharply due to a slowing in holiday hiring. You don’t need people if they aren’t coming into the stores. Restaurants cut back, in part due to the colder weather as well as the beginnings of new restrictions. And local government continue to contract as their financial situation deteriorate. On the other side of the coin, what malls lost, the delivery system gained. Transportation and warehousing payrolls soared. The virus surge created massive demand for health care workers and the housing boom led to a jump in construction and realtor positions. Manufacturing gains were decent, but largely because vehicle makers ramped up. Sales are not likely to support much further increases in this sector. Temporary help jobs were up solidly. Wage gains, though, remain strong.
As for unemployment, the rate ticked down, but not for the right reasons. The labor force declined and there are five million fewer people in the labor market than a year ago. As a consequence, the participation rate dropped again.
The trade deficit widened in October, but not to the level that had been expected. Both exports and imports were up strongly, a hopeful sign that not only the U.S. but other world economies are starting to improve. Shipments of all types of products, including capital and consumer goods, vehicles and industrial supplies all rose solidly. However, soybean farmers took a big hit. On the import side, the only category that didn’t show a rise was foods, and that decline was modest. It looks like trade may not play a major role in fourth quarter growth as the October deficit was only modestly higher than the third quarter average.
IMPLICATIONS: The ADP report warned that we could see a disappointing job gain and that was indeed the case. But what is disconcerting is that we have yet to see the full impact of the growing number of restrictions caused by the failure to take steps to keep the virus from getting totally out of control. there could be a lot of more cutbacks in the December report. It should be kept in mind that even with the massive monthly increases we have seen starting in May, we are still down by ten million jobs from the February peak.
The number of unemployed is still almost five million higher. That number is reduced by the four million drop in the labor force. Those who are out of the market are not considered to be unemployed. Even the good news on the wage front has to be tempered. The hourly wage number is a weighted average and many of the jobs lost were in lower paying positions. That would raise the average wage. It points out that the recovery is indeed looking like the so-called K-shaped one, where better paid workers are doing well (the upward part of the K) while lower paid workers are losing out (the downward sloping portion of the K). It also reinforces the view that Wall Street and Main Street are again going in very different directions and we shouldn’t use the equity markets as an indicator of the economy.
Indeed, I wouldn’t be surprised if investors actually like this disappointing number. They could argue that it puts more pressure on the government to sustain the business and household welfare programs by passing a new stimulus plan. So, investors cheered good economic numbers as they indicated the economy was coming back and may cheer disappointing ones by arguing that a stimulus plan would work just fine for companies. The markets go up on both good and soft numbers. That is, the markets go up.