Spreading Virus Shrinks Jobs in December
- The December Employment Report is out and it missed the headline expectation of 50 thousand new jobs with a notable decline of 140 thousand, the first decline since April. Partially offsetting that was a 135 thousand upward revision to the prior two months. The private sector saw 95 thousand jobs cut versus an expected gain of 25 thousand. The flip to job losses clearly reflects the labor market impact from rising virus cases. 12.5 million jobs have been created in the last nine months versus 22.2 million jobs lost in March and April. That means nearly 10 million jobs still remain lost. The race to replace those jobs will stretch into years. Meanwhile, the unemployment rate was unchanged at 6.7% besting the 6.8% pre-release expectation. The drop in jobs brings into focus the Heroes Act (Stimulus 2.0 bill) that was signed into law over the holidays and the varies benefits that package has. The bill, however, is half the CARES Act so we can expect the incoming unified Democratic government to move quickly to augment the Heroes Act with additional fiscal stimulus (most estimates are for a third stimulus bill approaching $1.0 trillion). Change the last sentence in that paragraph to: That explains the yield back-up in Treasuries this morning despite the weak jobs report. The 10-year is off 3/10ths in price to yield 1.09%.
- For the month, 140 thousand jobs were lost versus an expectation of 50 thousand new jobs. That’s the first monthly decline since April. The private sector had a loss of 95 thousand jobs and government saw a decline of 45 thousand. Job gains have been sliding lower for months now and more than 10 million remain unemployed out of the 22 million jobs lost in March and April. The leisure/hospitality field lost a whopping 498 thousand jobs as spreading virus cases caused many states to renew various levels of lockdown. The services sector as a whole lost 188 thousand jobs. Meanwhile, goods-producing jobs had a decent month adding 93 thousand jobs versus 67 thousand in November. Construction added 51 thousand jobs picking while manufacturing added 38 thousand for the month. These results reflect what other reports have been showing and that is the manufacturing/goods-producing sectors are faring better than the services sector as virus cases increase.
- The unemployment rate remained unchanged at 6.7% which was a beat of the 6.8% pre-release expectation. Recall the rate was 3.5% as late as February of this year. Fed Chair Jerome Powell has laid out one of the three criteria to lifting the fed funds rate is a return to full employment. If we use that 3.5% rate, or close to it, as a marker for full employment we’re still 3.8% away. And with job growth now in reverse, at least for one month, expect an additional stimulus bill from the new Biden administration. Also, the Fed’s December forecast of rates unchanged through 2023 still seems plausible. The Household Survey—which is used to generate the various employment ratios— found unemployed persons rose by only 8 thousand to 10.736 million while the labor force increased by 31,000 so both factors largely negated each other resulting in the unchanged unemployment rate. The labor force was also unchanged at 61.5%.
- Average hourly earnings jumped 0.8% in the month easily beating the 0.2% expectation and 0.3% print in November. That’s the largest monthly jump in earnings since April when the CARES Act stimulus checks were arriving. The year-over-year gain in earnings was 5.1% versus 4.5% expected and 4.4% in November. That’s the highest rate since May which again was impacted by the CARES Act benefits. The pop in the earnings print, however, is more a reflection of low-paying jobs lost than true earnings increases. Stimulus checks arriving this month, however, will boost these numbers for January.
Initial Jobless Claims Plateauing Around 800,000
Initial jobless claims first fell below 1.0 million four month’s ago. Since then the reduction in claims is coming more grudgingly and that stubborn plateauing is also being evidenced in job growth slowing to a standstill. The claims number when the December Employment Report survey was conducted was 806 thousand. The latest week’s claims number was 787 thousand. Thus, little change in claims over the past month could signal a similar jobs report for January with the jobs survey for January coming next week. The lowest claims figure since the pandemic hit was 711 thousand on November 11 but since than it’s been moving higher. That signals still more pain in labor markets as employers deal with rising virus case counts and the return of lockdowns in some states.
TIPs Breakeven Rates Move to 2Yr High
There’s been a lot made of the increasing TIPs breakeven rates since the lockdown-induced panic of March and April. While the initial move higher can be attributed to the weakening US dollar the latest moves are more to do with the idea that Stimulus 2.0 and the spreading vaccinations will goose the economy higher taking inflation with it. Also, with a Dem-controlled government additional stimulus seems likely. The question is will all this play out in inflation moving above the Fed’s 2% target? Breakeven rates moving higher has a lot to do with nominal Treasury rates moving higher. The question is after the past decade of struggling to get inflation to 2% will new stimulus and spreading vaccinations be enough to do the trick?
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.08%||Unch||1 Mo LIBOR||0.13%||-0.01%||FF Target Rate||0.00%-0.25%||3 Year||0.290%|
|6 Month||0.09%||Unch||3 Mo LIBOR||0.23%||Unch||Prime Rate||3.25%||5 Year||0.544%|
|2 Year||0.14%||+0.02%||6 Mo LIBOR||0.25%||+0.01%||IOER||0.10%||10 Year||1.093%|
|10 Year||1.09%||+0.17%||12 Mo LIBOR||0.33%||Unch||SOFR||0.11%|
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