Editor’s Note: Beginning today, our regular Market Pulse updates will be switching to a weekly cadence and published every Friday afternoon. We hope this will give a more complete summary of weekly economic developments, with an opportunity to offer more context at the end of each week to ongoing day-day developments.

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December 4, 2020

November jobs figures fell far short of expectations, and markets responded with optimism that the poor results may finally spur another round of federal fiscal stimulus. Other reports also show the recovery losing steam, though strength in the housing market endures.

The job market recovery slammed on the brakes in November

• 245,000 jobs were added to the U.S. economy in November, far less than the (downwardly revised) 610,000 jobs added in October.
• The national unemployment rate fell 0.2 points to 6.7%, but largely did so only because large numbers of people left the workforce.

The weak report may finally spur more fiscal relief

• Financial markets strengthened on Friday following the poor report, on expectations of more relief to come in its wake.
• Mortgage interest rates have largely withstood recent pressures to head upward.

Other economic data was also weak, but housing stood strong

• The ISM Services index slipped 0.7 points from October to November to 55.9, a six-month low.
• Spending on private residential construction projects rose 2.9% from October to November and was up 14.5% year-over-year.

So what? 

While the economy continues to re-fill jobs lost at the onset of the pandemic, the progress of recovery has definitely slowed. The U.S. economy added just 245,000 jobs in the month of November, down significantly from October’s 610,000 – which itself was downwardly revised from preliminary data. At this rate, S&P Global said it expects that U.S. employment won’t return to 2019 levels until at least 2023. The report also suggested that the recent surge in COVID-19 cases across the country is having a marked effect on hiring. The retail sector reported a loss of nearly 35,000 jobs in November, even as the holiday shopping season gets into full swing. Employment in the leisure and hospitality sector, meanwhile, remains down almost 20% from pre-pandemic levels after adding just 31,000 jobs in November. And while the unemployment rate fell further in November, it did so for the wrong reasons: More people left the labor force — the number of adults neither working nor looking to find a job increased by 560,000 in November from October. This figure, and the fact that so many people have been unemployed for more than 27 weeks, suggests many are giving up on looking for new employment — a major threat to the longer-term health of the U.S. economy.

Perhaps counterintuitively, markets reacted positively to today’s underwhelming report. Stock markets climbed to new all-time highs on Friday and the yield on the 10-year Treasury bond ticked up to near 1% — a level it hasn’t exceeded since the winter. Investors viewed the lackluster figures as a potential impetus for the federal government to agree to a new fiscal relief package. Bipartisan discussions of a pared down spending package happened earlier this week, and reports suggest that today’s job figures injected new urgency to the talks. Thus far, though, no deal has been agreed upon. Normally, an upward movement in Treasury yields would coincide with increased mortgage interest rates, but thus far mortgage rates have held firm. Mortgage rates have withstood pressure to head upward for weeks now, even as positive developments surrounding more fiscal relief and a coronavirus vaccine have emerged.

The November jobs data weren’t the only underwhelming economic data released this week. The ISM services index — which measures a variety of indicators related to the service sector, itself about 80% of the U.S. economy – slipped 0.7 points in November from October. Similar to the labor market, the report suggested that the sector continues to grow but at a slower rate than before. Measures of consumer confidence and spending also slipped in November, suggesting that the recent COVID surge is impacting consumer activity. The housing market, meanwhile, remains a bright spot in the broader economy. Pending home sales slipped in October but activity is well above levels from this time last year. Applications for home purchase loans ticked up 9% from a week before, and spending on private residential construction projects continues to improve. All told, the broader U.S. economy continues to strengthen but the pace of its improvements has slowed. Housing, meanwhile, is still showing signs of strength.

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