The Irony of the November Employment Report

 The stock market should be supported this week by improving chances of fiscal stimulus,  the likelihood of FDA approval of a vaccine, and possibly additional ECB monetary policy easing.  Both Democratic and Republican Congressional leaders are said to want to pass a stimulus bill before year end, according to news reports, although there are still areas of difference.  However, for the most part, the stimulus seems to be just a reduced extension of current benefits.  If so, it will do little to boost growth.  So, the situation may be more of "buy the rumor, sell the fact."

News reporters described the November Employment Report as weak and, as such, a catalyst for a stimulus bill.  However, while there was a sharp slowdown in Payrolls from the out-sized gains of the prior few months, the m/m gain is still large from an historical perspective.  And, taking account of other parts of the Report, as well, the overall Report is, in fact, strong.  So, the irony is that a strong Report will be pitched as weak to push for passage of more fiscal stimulus -- a combination that is positive for the stock market.

The sharp slowdown in November Payrolls to +245k Total and +334k m/m Private reflected 4 shifts:  /1/ A flattening in the two sectors that had rebounded the most from the virus — Leisure/Hospitality  and Retail.  Both likely slowed as a result of the renewed shutdowns.  /2/ A moderation in other sector job gains, but with still good-sized gains in cyclical sectors like manufacturing and construction.  /3/ A surge in Transportation and Warehousing, resulting from the increase in home delivery services.   /4/ The 99k drop in government jobs was due almost entirely to the winding down of census jobs, which fell 93k. 

Despite the slowdown in jobs, the Report is in line with above-trend economic growth in Q420.  The Nonfarm Workweek stayed at a very high 34.8 Hours.  As a result, Total Hours Worked rose m/m.  And, the November level of THW is 8.9% (annualized) above the Q320 average — supporting the idea of strong Q420 Real GDP Growth.  Indeed, the Atlanta Fed model's estimate of Q420 Real GDP Growth was raised to 11.2% from  11.1% after the Report.  This GDP pace and the size of the Payroll gain are above trend -- seen in the decline in the Unemployment Rate to 6.7% from 6.9%.

The declines in Initial and Continuing Claims in the latest report would seem to support the idea of strong growth continuing in November.  But, these data should be viewed cautiously.  They were for the Thanksgiving week, and seasonals may not have adjusted adequately for state offices closed for the holiday.  If so, it could take 1-2 weeks of additional data to see if the latest prints are telling the right story.   If the declines resulted from bad seasonals, Claims should rebound to above trend levels in this week's report and then pull back to trend in the subsequent report.  A smaller increase, such as the consensus estimate of +13k to 725k Initial, would signal that strong growth is overriding renewed shutdowns in terms of the labor market.

 

Besides Claims, inflation data for November will be released.  They are not expected to stand in the way of additional fiscal stimulus or continuing easy monetary policy.  In particular, consensus looks for a modest increase of +0.1% m/m for both Total and Core CPI.