The employment report reveals a weakening pattern in the direction of trip, which will increase the incentives
The Food Bank for New York City is selling turkey and Thanksgiving products with support from Stop & Shop and WBLS’s Steve Harvey Morning Show on November 16, 2020 in New York City.
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Employment growth slowed significantly in November and is set to decline further as the spreading pandemic hits all types of economic activity, causing more stalemates.
The creation of just 245,000 jobs, about 200,000 below forecast, signals a decline in the labor market which, according to economists, could result in a negative number for December. The report also complements the case for fiscal incentives to bridge the gap at a time next year when vaccine distribution is likely to allow a return to a more normal environment, economists said.
"That's pretty bad overall. It's really hard to say good things, to be honest. Wage growth has been weaker than expected, much weaker than it has ever been since the recovery began," said Tom Simons, Jefferies money market economist. “Everything indicated that employment growth is slowing and of course it has to do with the rise in Covid. Attitude in retail and hospitality has been very weak here and this is a sign that Covid and social distancing rules are not the recovery expand … On the positive side, average hourly wages are up 0.3%. "
Stocks remained positive after the report and government bond yields rose. The returns move against the price.
Some bond market professionals were expecting an even worse job image in November, and the market appears to have adjusted for all positives, including wage data. The report follows a revised employment increase of 610,000 in October.
"The details are not that bad. Wage growth is still going on. This is an event risk that we have overcome and the broader issue is a bear share," said Ian Lyngen, head of US rates strategy at BMO. The so-called steeper describes the increase in long-end yields compared to the short-end.
The 10-year yield rose more than 4 basis points on Friday and was 0.975% above the latest high closing level on November 10th. A hold above 0.96% could signal a rapid move to 1%, according to traders.
"I think it's a better argument for stimuli," said Lyngen.
Congress this week debated a compromise approach to a stimulus package after the leaders of Congress and the White House failed to reach an agreement for months. Stimulus talk was a catalyst for higher rates because more stimulus means more spending and more debt.
Possible decline ahead
Economists anticipate a sluggish labor market with potential job declines in December as seasonal retail jobs failed this year and states shut down more activity. California, for example, announced new restrictions Thursday that will close bars and hair salons and require residents of some hard-hit areas to stay home.
The job report highlighted the trends that have persisted during the pandemic. Transportation and storage employment increased by 145,000 in November. At the same time, retail employment fell by 35,000 due to less seasonal hires and the switch to online shopping during the holiday season.
Leisure and hospitality increased by 31,000 but are still 3.4 million below February levels. Healthcare added 46,000 jobs and government payrolls fell by 99,000 as temporary workers left their jobs.
The unemployment rate fell from 6.9% in November to 6.7%.
"The unemployment rate has gone down for the wrong reason – the workforce has gone down … 245,000 isn't a significant gain when you consider how many 9.8 million jobs we have left in the hole," said Diane Swonk, chief economist at Grant Thornton. "We'll be negative next month. We'll be in the red next month, especially given the rising numbers of layoffs in the retail, leisure and hospitality sectors."
Economists expected a weaker job market at the beginning of the year due to the record spread of the pandemic in the United States.
Sign of stimulus
Swonk said the economy needs support from another stimulus package and the employment report highlights that need. She said the partisan difference in Congress had reduced opportunities for incentives.
"The moderates are moving now and we see a better chance for inspiration," she said.
Rick Rieder, head of fixed income at BlackRock, said there are trends that show wage growth will improve, including rising wages.
But he also said that it is likely that economic growth will outpace labor market recovery in 2021.
"This year's monetary and fiscal incentives, as well as the likely incentives in the coming months, have gone a long way in protecting businesses and household incomes from far worse outcomes," he noted.
The number of people temporarily laid off in November fell by 441,000 to 2.8 million. The number of long-term unemployed people who were unemployed for 27 weeks or more increased by 385,000 to 3.7 million, representing 36.9% of the total unemployed.
"If you look at the number of unemployed people working 27 weeks or more, we see the point where they are moving into the dangerous zone," said Drew Matus, chief marketing strategist at MetLife Investment Management. He said the longer people are unemployed, the more unemployed they become. "Before that we were in pretty good shape."
Matus said the labor market is at risk from further shutdowns as the vaccine is awaited.
"When you know the vaccine is coming, the more rational response is to actually shut down," he said. "You know when you reopen it will be a more normal environment and you know how to exercise business acumen in that environment … it is more likely that states will stall and that create higher risk in the job market."
Matus said how much the economy is supported depends on how the incentive is structured and a quick vaccine would be the best help.
"Something bad happens and it's kind of fun to talk about 245,000 jobs added as something bad. It won't. That means we're stepping on water and there is no lifeboat on the horizon," he said.