Big miss on jobs numbers

By Edward Harrison On Dec 4, 2020

The report on the US Employment Situation for November 2020 was released today. And the headline job growth number was poor, a miss of over 200,000 jobs. But as I write this, markets are mostly of a bullish mindset, looking through this data and the soaring Covid-19 hospitalizations and deaths. Some thoughts on the numbers follow below.

The Numbers

Here’s what we got versus prior levels and expectations

Non-farm payrolls of 245,000 vs 469,000 expected and 638,000 in October
Private non-farm payrolls of 344,000 vs 589,000 expected and 906,000 in October
Unemployment rate of 6.7% versus 6.8% expected, down from 6.9% in October
Average hourly earnings (yoy) at 4.4% vs 4.3% expected, down slightly from 4.5% in October
U-6 unemployment number of 12.0% vs 12.1% in October
Labor force participation rate of 61.5% versus 61.7% in October

These numbers show the economy adding jobs, but at a much slower rate than in prior months during the re-opening and slower than anticipated as well.

Year-over-year numbers will give you a sense of where we are:

Civilian noninstitutional population: 261,085,000 in November vs 260,020,000 a year prior
Civilian labor force: 160,467,000 or a labor force participation rate of 61.5% of the total vs 164,347,000 or 63.2% in November 2019
Employed: 149,732,000 or 57.3% versus 158,536,000 or 61.0% a year ago
Unemployed: 10,735,000 now, yielding an unemployment rate of 6.7% versus 5,811,000 or 3.5% a year ago
Not in labor force: 100,618,000 now vs 95,673,000 a year ago

What stands out there is that we have 5 million fewer people in the labor force and five million more people unemployed in the US today than a year ago. That’s exactly why, with the civilian population growing by 1 million, we have 8.8 million fewer people employed today than a year ago.

1 million more people in the civilian population a year means you need 80,000 some jobs just to make up for population growth. 245,000 jobs means you’re essentially cutting into the 8.8 million hole by 165,000 a month. That’s a pace that gets us back to square one in 4 and a half years i.e. the year 2025.

The context

This simply isn’t good enough. But, as I started this post financial markets were looking through the data. Dow futures were up. Crude oil was up. Gold was up. And bond yields were up too.

That combination of signals points to a positive economic outlook, with rising real yields and inflation. So financial markets are already trading on the post-vaccine economic outlook. And these numbers – a miss of over 200,000 – were simply not ‘bad’ enough to change that view.

One might be cynical enough to take the view that the numbers weren’t terrible, but just bad enough to concentrate minds in Congress and put through a bigger stimulus package. And as long as we have the prospect of stimulus, markets are happy looking through the data.

From what I am seeing, the $908 billion package touted by moderates is now bought into by the Democratic establishment in Congress, while the Republican leaders Mitch McConnell and Kevin McCarthy are hammering out a skinny package with White House officials. I won’t handicap the outcome at this point. But momentum is building for something to get done before the year is over and several fiscal cliffs occur.

Does the $908 billion package take care of the federal eviction moratorium, student-loan and mortgage forbearance programs, and emergency paid family and sick leave programs? I don’t know. But we know Congress let lapse the $600 weekly unemployment benefit supplement. They’ve also stopped accepting applications for the small-business lending program.

I believe the package will extend additional weeks of unemployment insurance benefits and the expanded eligibility of benefits to “gig workers,” freelancers and independent contractors. If I am not mistaken, it will not help states and municipalities, that must meet Covid-19 outlays with significantly lower tax revenue bases by cutting spending.

My View

I look at the numbers and the context and I see a high probability for a double dip recession. In terms of outcomes, that’s the one I see as likeliest. It’s my base case now. To get there, we would have to see 245,000 jobs added become zero and turn negative in future reports though.

In some respects, we’re already there actually. Economist Justin Wolfers pointed out today that the household survey suggests that employment actually declined by -74,000 last month. And he went on to note that the unemployment rate is going down on the back of millions of people leaving the labor force.

By @jasonfurman‘s calculation, the “realistic” unemployment rate — which adjusts for the unusual decline in participation — is 8.5%, and is *rising*.https://t.co/tLb6uYhe9f

— Justin Wolfers (@JustinWolfers) December 4, 2020

I see a rosy future once the vaccine is in place too. On Wednesday, I went to pick up my bike from the repair shop and to get a space heater. And I walked through a shopping area with restaurants galore, a mall with a Macy’s and movie theatres, and into Target. It was an absolute ghost town. No one was there. Precautionary non-shopping has already arrived. But when the vaccine has been administered en masse, there is going to be massive pent-up demand. Those places will be packed.

The question is how long we have to wait to get there and how much permanent damage gets done before then. Markets are telling you the consensus is that we’ll get there without much of a problem. I think that consensus is wrong. And in the next several weeks, we’re going to find out.