Job Creation, Slower Pace

Optimism regarding a near-term vaccine remains elevated with little regard to lingering obstacles from an approval, manufacturing and production, and distribution standpoint, headwinds Pfizer says it is already facing. According to reports, Pfizer expects to ship only half of the 100M COVID-19 vaccine doses this year that it originally planned due to “supply chain obstacles,” although the company said it still expects to ship more than 1B doses in 2021. Moderna, meanwhile, announced it will supply up to 125M vaccine doses globally in the first quarter.

Despite setbacks, investors remain optimistic a near-term vaccine will thrust the U.S. economy into a longer-run and sustained recovery. Overnight equities rose 0.4%

This morning, equities are up 0.4%, currently trading at 30,078.30 as of 9:44am ET.

As the public awaits a vaccine, local officials, meanwhile, continue to implement additional restrictions and lockdown measures in an attempt to control the immediate spread of the virus. In California, for example, Governor Gavin Newsom announced a regional stay-at-home order beginning this weekend. According to reports, the triggering metric for the order is when a region’s ICU capacity reaches 85%. At this point, none of the state’s five regions “currently meet this threshold but some are projected to within the next week.”

The latest data show new coronavirus cases at 217,664 and 2,879 deaths recorded as of yesterday, a record high, according to Johns Hopkins. More than 14.1M cases of COVID-19 have been reported in the U.S. since the onset of the pandemic and over 276k deaths. According to the Covid Tracking Project, hospitalizations of COVID-19 patients reached another record high of 100,667 yesterday, surpassing 100,000 for the second consecutive day.

Yesterday, the Senate narrowly confirmed the nomination of Christopher Waller to the Federal Reserve's Board of Governors. In a tight 48-47 vote along party lines, Waller marks President Trump’s fifth confirmed pick to the Fed. Waller is the research director at the Federal Reserve Bank of St. Louis and taught economics for nearly 25 years before joining the St. Louis Fed in 2009. A conventional respected figure among economists, Waller was also seen as a far less controversial nominee than Judy Shelton who was voted down in the Senate last month.

Fed governors are nominated by the president and confirmed by the Senate for a full term of fourteen years. One term begins every two years, on February 1 of even-numbered years. A member who serves a full term may not be reappointed. A member who completes an unexpired portion of a term may be reappointed. All terms end on their statutory date regardless of the date on which the member is sworn into office.

In international news, after five days of difficult talks, OPEC+ members agreed to gradually ease supply cuts, adding 500K barrels a day of production next month. The group also agreed to hold monthly meetings to decide on subsequent moves.

Crude prices have remained under pressure for nine months amid restrained global demand, down 22% year-over-year. This morning, crude is up 0.22%, currently trading at $45.74 a barrel as of 9:30am ET.

In other international news, with only four weeks left until the U.K. formally exits the EU, a trade deal still appears uncertain. With the clock ticking down, there are still a number of unresolved key issues including fishing rights and the "level playing field" of state aid, as well as what "effective remedies" each side could take if the other breaks an agreement. If the two sides fail to reach a deal, many have suggested the Brexit divorce would end in a “nightmare scenario” for businesses and investors. At the very least, a lack of a cohesive agreement would wreak havoc on supply chains, borders and markets.

The pound is up 0.60%, currently trading at $1.35 against the U.S. dollar as of 9:33am ET.

Yesterday, initial jobless claims dropped by 75k from 787k to 712k in the week ending November 28. According to Bloomberg, jobless claims were expected to fall to 775k. 

A total of 69.7M applications for unemployment insurance have been filed over the past thirty-seven weeks due to the impact from the coronavirus.

Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, declined from 6.089M to 5.520M over the past week.

Bottom Line: As the U.S. economy continues to struggle under the weight of the pandemic, a larger-than-expected decline in claims suggests at least some sectors of the labor market are navigating and adapting to this new environment. At the same time, however, continued improvement on the jobs front may mask the immediate need for further fiscal support, alleviating pressure on those in Washington to negotiate a fifth-round aid package sooner than later.

Also yesterday, the ISM Services Index declined from 56.6 to a reading of 55.9 in November, slightly less than the expected decline to 55.8, according to Bloomberg, albeit a six-month low.

In the details, prices paid increased from 63.9 to 66.1, and supplier deliveries gained from 56.2 to 57.0 in November, a three-month high. Also, imports rose from 52.5 to 55.0, and employment increased from 50.1 to 51.5, a two-month high. On the weaker side, new orders declined from 58.8 to 57.2, backlog of orders fell from 54.4 to 50.7, and exports declined from 53.7 to 50.4 in November, a four-month low.

This morning, nonfarm payrolls rose by 245k in November, less than the 460k gain expected, according to Bloomberg. October payrolls, meanwhile, were revised down from a 638k rise to a 610k increase, while September payrolls were revised higher from a 672k rise to a 711k gain. The overall change in nonfarm payrolls (November data + net revisions) was 256k. Employers have added 12.3M jobs since May. However, the 12.3M gain still only accounts for slightly more than half of the 22.2M jobs lost in March and April.

Private payrolls rose by 344k in November, following an 877k gain in October. Goods-producing payrolls rose 55k due to a 27k gain in construction payrolls and a 27k gain in manufacturing payrolls. Service producing payrolls gained by 289k in November, following a 770k rise the month prior. Government payrolls, on the other hand, fell 99k in the second month of Q4 with federal employment declining 86k.

Household employment fell by 74k in November, following a 2.2M rise the month prior. The labor force, meanwhile, declined by 400k, following a 724k increase in October. Thus, the unemployment rate dropped from 6.9% to 6.7% in November, and the participation rate fell from 61.7% to 61.5% in October, a two-month low.

Average hourly earnings increased 0.3% in November, more than the 0.1% gain expected, according to Bloomberg, and a three-month high. Year-over-year, wages rose 4.4% in November, matching the pace in October.

Finally, the average workweek remained at 34.8 hours in November for the third consecutive month.

Bottom Line: The latest bout of data this week indicated further improvement in the U.S. jobs market with a larger-than-expected decline in weekly jobless claims and the November employment report showing an addition of hundreds of thousands of new payrolls, the seventh consecutive month of positive job creation. The pace of job creation, however, has slowed noticeably from a more robust stride in the fall, leaving still near 10M Americans unemployed and millions more reliant on federal unemployment assistance. Going forward, with federal assistance and forbearance opportunities set to expire at year-end, coupled with increasingly onerous restrictions and lockdown measures as a result of a rapidly rising number of COVID-19 cases, further job losses and business closures are expected, painting an increasingly difficult scenario for households and workers. 

-Lindsey Piegza, Ph.D., Chief Economist