- Improved pandemic situation sparks hope for slow revival of U.S. labor market
- House passes pandemic-aid budget resolution with attention now shifting to Senate
Improved pandemic situation sparks hope for slow revival of U.S. labor market — The markets were buoyed by yesterday’s ADP report of +174,000, which was substantially stronger than market expectations of +50,000. The market has become gun-shy about a weaker labor market after ADP jobs fell -78,000 in December and payroll jobs fell -140,000, the first declines since April. In addition, initial unemployment claims have been backsliding, indicating a continued high level of layoffs.
However, the markets are hoping for an improved labor market going into spring as pandemic restrictions are slowly lifted due to the improving pandemic statistics. The 7-day average of new Covid infections on Tuesday fell to a new 2-3/4 month low of 141,951, the lowest since mid-November, according to data compiled by Bloomberg. The single-day number of Covid infections on Tuesday fell to a 5-week low of 114,270.
The decline in new Covid infections is due to (1) the increased restrictions and social distancing measures seen in the past several months, (2) the end of the holiday surge, and (3) possibly a decline in seasonal cases if Covid follows a seasonal pattern like the flu. In addition, more than 15% of the U.S. population has some level of immunity to Covid because they have either had the disease and recovered, or because they had at least one vaccination dose.
However, there no guarantees that the recent decline in Covid infections will continue since the U.S. is now being invaded by Covid variants from the UK, South Africa, Brazil, and probably other regions. The key will be whether the U.S. can get its population vaccinated fast enough to prevent the new variants from getting a strong foothold. The other critical factor will be whether the current vaccines are fully effective against the new variants.
The consensus is for today’s initial unemployment claims report to show a decline of -17,000 to 830,000, adding to last week’s decline of -67,000 to 847,000. Continuing claims are expected to fall -71,000 to 4.700 million, adding to last week’s -203,000 decline to 4.771 million.
The initial unemployment claims series fell to a 10-month low of 711,000 in early November, but then moved higher as the pandemic surge began in November and caused many service businesses to close back down. The series is currently +136,000 above November’s 10-month low and is +630,000 above February’s pre-pandemic level.
On the labor front, the market is looking ahead to Friday’s Jan payroll report, which is expected to show a gain of +100,000, thus recovering part of December’s decline of -140,000. Expectations for Friday’s payroll report strengthened after ADP on Wednesday reported that its employment figure rose by +174,000, which was substantially stronger than market expectations of +50,000.
Friday’s Jan unemployment rate is expected to be unchanged at 6.7% for the second straight month. The unemployment rate has fallen sharply from April’s record high of 14.7%. However, the unemployment rate remains very high at 6.7%, well above the pre-pandemic 50-year low of 3.5%.
Moreover, the unemployment rate would be significantly higher if it weren’t for the many people who have dropped out of the labor market, either because they gave up on finding a job or perhaps because they needed to stay at home and take care of children during the pandemic.
Treasury Secretary Yellen on Tuesday said, “it will be years before the country reaches full employment again.”
House passes pandemic-aid budget resolution with attention now shifting to Senate — The House yesterday approved the 2021 budget resolution that provides the framework for the $1.9 trillion pandemic aid bill. The vote was 218-212, close to party lines.
The Senate is expected to work on the budget resolution today. The Senate process is more time-consuming since hours of debate are required, and a “vote-a-rama” is required where Senators are allowed to vote on a host of amendments. The Senate is trying to get the budget resolution passed by the end of this week so that it doesn’t have to wait until after Mr. Trump’s impeachment trial, which begins this coming Tuesday.
Once Congress passes the budget resolution, it will be sent to the Congressional committees to compile the language for the actual bill. The bill can then be passed by a majority vote of both the House and Senate and the signature of the president. The budget resolution instructs the committees to produce the legislation by February 16, allowing the House to vote on the bill as soon as February 23. Democrats intend to pass the pandemic aid bill before expanded unemployment benefits expire in mid-March.
Meanwhile, the Senate yesterday passed the organizing resolution that was necessary for Democrats to take full control of the Senate committees. That will allow Democrats to speed up the pace of getting President Biden’s cabinet members confirmed, although that process will be interrupted by next week’s Trump s impeachment trial.
