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Non-Farm Payrolls Preview: Negative territory soon?

Jan 6, 2021
In amongst a defining Senate runoff election and a stellar US manufacturing ISM, the monthly US jobs data is released on the first Friday of the month. Rising infection rates are expected to weigh on the labour market, with the headline figure forecast to add just 100,000 job gains in December. The Winter months may see more gloomy numbers as economic activity struggles to pick up until Spring.

While the prospects for the economy later in 2021 are relatively upbeat, the economy and labour market will have to find their way through some difficult terrain between now and then. After a strong rebound in the third quarter and an October headline print of 610k, November saw the sixth straight monthly slowdown in job gains after payrolls increased by 245k, well below forecasts of a gain of 480k. The slowdown has certainly been quite stark when one considers that over 1.7 million jobs were added in August.

Slowdown in weekly jobless claims

The economy lost around 22 million jobs across March and April and while payrolls have risen each month since, the total level of employment remains roughly 10 million jobs below its pre-pandemic level. Although a stimulus deal has been struck, the resilience among US consumers may be waning after a big increase was seen in weekly initial jobless claims at the beginning of December which saw a rise from 716k to 885k in the space of two weeks.

The most recent claims for benefits numbers have dropped to a seasonally adjusted 787k, but it has still left them at roughly the level they were three months ago and there is little indication they will show any material improvement any time soon.

As of mid-December, more than 19.5 million people were receiving some form of jobless aid, including those emergency measures extended by the latest coronavirus aid bill passed by Congress and signed by President Trump. Those emergency programs now account for roughly two-thirds of all ongoing jobless assistance. So, the elevated level of claims aligns with other softer economic releases recently including a fall in both consumer spending and income last month and a decline in consumer confidence to four-month lows in December.

Unemployment to tick higher

While the jobless rate has fallen progressively lower every month from a high in April of 14.7%, analysts expect the December estimate to move a tick higher to 6.8%. It is notable that the participation rate has also dropped sharply to 61.5%, reflecting those people who have given up looking for work. The underemployment rate is perhaps a more accurate indicator as it doesn’t understate the actual number who are probably out of work. Currently at 12%, this figure is still well above the historical average and the 6.7% reading from December 2019.

Challenging few months ahead

With persistently high infection levels forcing renewed restrictions on consumer activity around the country, the cooling labour market could be in for a tough Winter. Other data like the preliminary Markit PMIs and the Homebase report are offering similar pictures with more falls seen in jobs from the leisure and hospitality sectors. The potential for a negative jobs number is clear with risks of more containment measures hitting the economy. Mounting long-term joblessness is a clear hurdle as the market looks to the new stimulus package and a full recovery later in the year.

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