Back To Work

The US is poised to get back to business coming off a holiday which this year was defined by virtual gatherings or else by people defying public health guidelines to crowd around the dinner table at the risk of sickening the grandparents — and not just because someone messed up the deviled eggs.

Awaiting market participants is a full data docket headlined by PMIs and November payrolls, with ISM manufacturing up Tuesday.

Manufacturing has been reasonably resilient thanks to shifting consumption patterns and the idea that factories are one step removed from the pandemic’s “frontline” (meatpacking plants were hit hard during the onset of the outbreak, but that’s not properly “manufacturing”). The flash read on IHS Markit’s manufacturing gauge for November was upbeat and last week’s durable goods report offered several upside surprises as well. The market will be looking for a similarly solid print from ISM.

October’s ISM manufacturing print was a scorcher, if you recall (green line in the figure).

ISM services will hit on Thursday. Common sense dictates that services sector activity should decelerate at some point soon to reflect new lockdown measures instituted from “sea to shining sea,” as it were. But any such drop-off wasn’t evident in the flash read on IHS Markit’s gauge, and especially not in the services employment subindex, which hit a record.

That said, ISM services hit a five-month low in October, so it wouldn’t be surprising to see a further deceleration in November considering the proliferation of the virus and the impact of associated business restrictions. The figure (below) is just a snapshot of where things stand on ISM’s gauges.

Friday will bring the first post-election jobs report, which will be interesting for a variety of reasons, not least of which is that Donald Trump — who suffered several additional setbacks in his quest to overturn the election results over the past several days — will invariably blame any weakness on Joe Biden despite that being mostly implausible.

The labor market has, of course, lost momentum of late, even as the economy continues along the road to recouping the ~22 million jobs lost during the worst two months of the lockdowns. Consensus is looking for a 500k print on the November NFP headline.

The visual (below) shows how the jobs lost in March and April wiped away every job created during the longest expansion in US history — and then some. The expansion dates I used were June 2009 through December 2019.

The orange area simply shows that the US labor market is still down 10 million jobs from pre-pandemic levels. The blue bars show the deceleration in monthly gains.

You’re reminded that the latest read on jobless claims was somewhat disconcerting. Initial claims rose two consecutive weeks and sit at a five-week high.

The unemployment rate has come down faster than expected, and should drop to 6.8% in November, according to consensus.

“We will be focused on the ability of service sector firms to continue contributing to jobs growth, or any drop off in hiring as it became clear a new wave of infections was taking hold in the US,” BMO’s Ian Lyngen and Ben Jeffery remarked. “Further labor market healing is a necessary but insufficient condition to drive consumption and thus inflation back toward the Fed’s goal, but before wage gains can materialize, an extension of the process of returning sidelined workers to the labor force must persist.”

Recall that the latest personal income and spending figures (for October) showed that while consumption held up, incomes did not, as government assistance continues to dissipate while lawmakers dither through the lame duck session, with all eyes on the Georgia runoffs.

So, while it may be “back to work” for traders and investors coming off Thanksgiving, and “back to work” for another few hundred thousand lucky souls who found their way onto payrolls in November, “back to work” is something nearly 10 million Americans can (still) only dream of, sidelined as they (still) are.

As a somber reminder, long-term unemployment rose to 32.5% in October. That was up sharply from 19.1% in September.

That number has surged over the past two months (red in the figure).

As Bloomberg’s Katia Dmitrieva put it, “one-third of the unemployed haven’t had a job since the first round of coronavirus layoffs in April.”


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3 thoughts on “Back To Work

  1. Cooler weather has outdoor dining on the wane in the North and that will decrease income/employment.
    Covid wariness will have many sheltering.

  2. I hope our elected politicians have learned a lesson from Covid-19 and bring back a critical amount of manufacturing across industries, especially pharmaceuticals and chips, as protection for our country.
    Sure, we will have to subsidize the salaries, compared to what China pays the Uighur Muslims or even what people are paid in India and China that are not held in labor camps, but it seems we could muster bi-partisan support for that. Both from national security and providing more “living wage” jobs.

  3. You would think. But, you have to take into account where Mitch McConnell’s mind is. Is he bent on destroying the GOP or trying to make it into the real leadership of America where it has it’s foot on the neck of government. If there is no meaningful relief package out of the Senate before the Georgia senatorial run-off elections and the GOP loses both seats to the Democrats, i believe the whole country will be aware of the fact that the GOP doesn’t give a damn about the millions of people who are in dire straights throughout the nation. That the Democrats have to be in control to save the hungry and the homeless through no fault of their own. The relief package bills are waiting for the Senate to take up and vote on. Mitch has only to say the word. Are there enough Republican Senators willing to help the people who are in real need or are they to be found on the golf course with the former President who abdicated and continues to ignore the cries of the people he was sworn in to serve.

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