MANHATTAN (CN) — Despite being given lemons in the form of disappointing jobs data, Wall Street squeezed out fresh record highs on renewed hopes of a stimulus package by the year-end.
The Dow Jones Industrial Average, which dropped slightly on Monday but then slowly regained and surpassed its previous high point from last week, finished the week at a new record high of 30,217 points.
Also setting records, the S&P 500 hit 3,699 points by the closing bell, while the Nasdaq steadily crept upward and hit 12,377 points.
The promise of a Covid-19 vaccine and a new president had driven gains in recent weeks, but this week attention was hyper-focused on Congress and another relief package.
Lawmakers on both sides of the aisle reportedly said negotiations were heading in the right direction, with House Speaker Nancy Pelosi saying she wanted to attach a stimulus bill to the $1.4 trillion omnibus spending package due later this month and Senate Majority Leader Mitch McConnell saying, “we had a good conversation.”
Many investors seem confident a deal will get done by next Friday, when the federal budget comes due, particularly given the softening job market and the stark increase in coronavirus cases.
“With lockdowns increasing and virus cases soaring, the case for more stimulus is strong enough that it’s getting the two sides together,” wrote Tom Essaye of the Sevens Report. But he noted that “this is not a done deal yet, and if it falls apart, we should expect the S&P 500 to give back at least a few percentage points next week.”
Consultant Joel Naroff said that if no bill is passed, the economy could start to stall again and investors may turn bearish again, but that “if anything at all passes, they will probably celebrate like crazy.”
Business groups crave more stimulus. Neil Bradley, chief lobbyist for the U.S. Chamber of Commerce, said in a statement that recently slumping jobs numbers heighten the need for another stimulus package. “The time for Congress to move a bipartisan bill is now,” Bradley said. “The details of this bill are very important, but time is of the essence. American families cannot wait until next year.”
So, too, do some political leaders. Speaking to reporters on Thursday, New York Governor Andrew Cuomo urged Congress to pass a stimulus. “Something is better than nothing,” he said, and that it could be a “first down payment” to help relieve the budgetary pressures of ailing states and localities.
On the employment front, job gains are dipping again. Only 245,000 nonfarm jobs were gained in November, according to the Bureau of Labor Statistics, much lower than the 450,000 many economists had expected.
November marks the fifth straight month of slackening job gains, ever since 2.5 million jobs were gained in May. It is also a massive decrease from the 638,000 job gains in October and the 661,000 job gains from September.
While the overall unemployment rate dipped slightly to 6.7%, the rate of core unemployment — the measure many economists look to because it does not take into account temporary layoffs — hit 6.2%, the highest since the pandemic started. The employment rate for “prime-age” workers, or those 25 to 54 years old, also remains virtually unchanged from October but still well below numbers from February.
“This is a grim jobs report,” President-elect Joe Biden said in a statement. “It shows an economy that is stalling.”
It may be grimmer than the headlines allow. Some experts, like Jason Furman at the Peterson Institute for International Economics, say the “realistic unemployment rate” last month was actually 8.5%, slightly higher than that of October. Furman discounts the additional 629,000 workers who told the Bureau of Labor Statistics they were “not at work for other reasons,” which the agency treated as employed for its numbers.
The slowdown in hiring is likely due to the third wave of Covid-19 cases, which has caused many states to impose new lockdowns.
“While the daily flow of encouraging vaccine news fosters hopes of a strong recovery in 2021, real-time data is much less optimistic,” wrote Greg Daco, chief U.S. economist at Oxford Economics. “Amid slowing economic momentum, we can acknowledge the admirable recovery so far, but we shouldn’t omit the fact that it remains incomplete.”
But the BLS data does track with other reports. Earlier in the week, the monthly ADP payroll report found that 307,000 jobs were gained in October, the slowest increase since July.
The good news is that unemployment claims fell last week after recent increases. About 712,000 new unemployment claims were filed the week ending November 28, though many experts question that data since it came during Thanksgiving week, when data can be fuzzy.
As of November 14, more than 14 million Americans received unemployment under federal programs created during the Covid-19 pandemic, while nearly 6 million received claims under regular state unemployment programs.
The drop in unemployment claims is marred by the fact that many low-paying jobs are not returning, particularly in certain industries.
“Gone are McDonald’s cashiers, replaced by computer screens. Home Depot and WalMart get more sales via their self-checkout lanes than regular ones,” wrote James Vogt, senior portfolio manager at Tower Bridge Advisors. “Online ordering means fewer people working at the malls for $8/hour. Restaurants are doing more with less.”
The unemployment landscape may not be entirely accurate, in any case. The Government Accountability Office said in a report this week that the Labor Department’s weekly report “has not been an accurate estimate of the number of individuals claiming benefits during the pandemic because of backlogs in processing a historic volume of claims among other data issues.”
The GAO recommended the department note in its weekly releases that the numbers reported are not an accurate estimate of unique individuals claiming benefits, to which the Labor Department agreed.
Further, the decline in continuing unemployment claims likely reflects the expiration of eligibility through regular state programs, while the overall decline in claims is sue to an “understated seasonal adjustment” during Thanksgiving week, analysts at Goldman Sachs wrote in a research note.
The spike in Covid-19 cases is not likely to help matters. According to data compiled by Johns Hopkins University, there have been more than 65 million cases of Covid-19 worldwide, with 1.5 million deaths. In the United States, nearly 14.1 million Americans have contracted the disease, while about 276,000 have died.
Positive vaccine news and a lesser death rate than during the spike earlier in the year has encouraged investors, but it may not be enough.
“The prospects for next year seem brighter with the possible roll out of multiple vaccines,” wrote Nick Bunker, economic research director at Indeed Hiring Lab. “However, a vaccine is not a cure-all for the economy. A vaccine will not re-open closed businesses or reimburse lost wages. In the absence of renewed fiscal relief or a jump in job growth in the months ahead, millions of people could be in for a dire winter.”
Follow @NickRummell
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