Stimulus 2.0 Still Far From Settled
This is jobs week and also with a pair of ISM reports we’ll get a pretty good feel for the economic activity in November. That’s all well and good but the market is more interested in the fate and look of a stimulus bill and that has bonds on the back foot as traders bet on the likelihood of a stimulus bill getting passed before Christmas, but were they early in that bet? We talk more about stimulus bills below but we did get the ADP Employment Change Report this morning and it found 307 thousand new private sector jobs versus 404 thousand in October and 440 thousand expected. What that means for the Friday jobs report is anyone’s guess, however, as the ADP report has generally been under the BLS numbers since the recovery began. In any event, the downward trend in job growth is clear which is unsettling when you think there are still more than 10 million workers unemployed from the pandemic; thus, a strong rationale for more stimulus. Finally, in this week’s podcast Caleb Stevens sits down with David Salyers, Chick Fil-A executive and CenterState director. David has fascinating business insights from his days helping to build Chick-Fil-A into a powerhouse and he does it in an entertaining way so you won’t want to miss this episode. The itunes link can be found here and the Spotify link here. Note: if the show doesn’t appear right away, keep refreshing the link during the day.
While Fed Chair Powell and Treasury Secretary Mnuchin were testifying in front of the Senate Banking Committee yesterday on how best to help the economy going forward, some of their spotlight was stolen by word that a bipartisan stimulus proposal had been brokered. The $900 billion stimulus proposal came from a bi-partisan group of House and Senate members that included: $300/week in unemployment benefits, $300 billion for another round of PPP loans, $250 billion in state and local aid, and $50 billion for vaccine distribution and a liability shield for businesses, but no stimulus checks.
While the group was bipartisan it didn’t include any leadership members giving it an uncertain future. Meanwhile, Senate Majority Leader McConnell quietly circulated a proposal among Senate Republicans that is much more austere with no state and local funding and personal benefits extended to just January 31, 2021 from December 31, 2020. Expect more talk and rumors around competing stimulus bills as the urgency to get something approved before the Christmas break builds and that had stocks and bond yields spiking higher as shown in the graph below. But as you can see from above there remains a wide gulf between the Republican desire for a modest, targeted bill versus the Democratic desire for a more sweeping, larger bill. As they say, it ain’t over till the fat lady sings and she may not even be warming up yet, so this jump to higher rates may have been a tad premature.
November ISM Manufacturing Index Solid but is Virus Impact Starting to Show?
If there’s been another sector of the economy that could challenge the housing market for best performance it would have to be manufacturing. Unburdened by much of the social distancing that bedevils service industries, manufacturing was quick to rebound from the March/April swoon and has continued to post impressive numbers since the rebound started.
While the November headline number missed estimates at 57.5 versus 58.0 expected it still represents a solid expansionary print. The November number comes after a 59.0 in October that was the highest in two years so some consolidation from that peak could be forgiven but the employment sub-index did post a notable decline.
The employment sub-index dropped 4.8 points to 48.4 signaling contraction in jobs and that will be something to look for in the Friday jobs report. Another point to make, if you’re looking for some further backsliding, is that with many manufacturers located in the Midwest, where the virus is raging, absenteeism due to sickness is already starting to constrain output. So while this is a solid report in most respects there are some nagging concerns that may show themselves more forcefully in the next few months.
Agency Indications — FNMA / FHLMC Callable Rates
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