Futures were down before the ever-important employment report data this morning. Executive orders came out of the White House that target data collecting technology apps from China, namely TikTok and the widely used WeChat (over 1 billion users) that is owned by Tencent. The order bars any transactions with the two companies due to national security concerns. The Administration claims the Chinese government has access to user information on these platforms. Both are already banned in other developed nations as well. It is tough for China to have the moral high ground here when Google Search, YouTube, Facebook#, Twitter#, Instagram and Snapchat# are all banned there in their current form. The Executive action doesn’t take effect until 45 days from now, so there is negotiating room.
Today’s employment report had a best guess range for a loss of 300 thousand to a gain of 4 million jobs. Quite a wide margin. July jobs came in at +1.8 million, ahead of the average estimate. This is a far cry from the record 4.8 million in June, but was expected. The unemployment rate is down to 10.2% and average hourly earnings were up 0.2%. These were handily ahead of consensus. The dollar, yields and stock market futures all advanced initially on the release. However, anything can happen during trading hours.
Prior to today’s employment report, ADP private payrolls came out on Wednesday. Although the headline figure of 167,000 private jobs added was well below the estimated 1.2 million, June’s figures were adjusted upwards by nearly 2 million additional jobs. In total, a 4.3 million expansion in hires for June was followed by a massive fall. That is not the type of trend investors want to see to say the least. We know the reasons; Covid case counts started to rise and businesses were forced to once again close up shop. Many reopened only to see sales are not coming back. More businesses are closing for good.
With case counts now dropping, August will be a more important month to monitor from an employment perspective. The market took the release in stride, with advances in most sectors on Wednesday. The Dow was up nearly 400 points, or 1.4%.
Yesterday, initial unemployment claims fell to their lowest levels since coronavirus came to our shores in March. Hiring may have slowed from June’s pace, but at least less people are getting laid off. Consider this a good, nowhere near great, report. We still have 20 straight weeks of more than 1 million people filing:
The major averages advanced again on Thursday, making this a 5-day winning streak. The S&P 500 is now only 1.3% from all-time highs. A truly remarkable comeback considering the global devastation caused by the pandemic. The Nasdaq continues to make new highs as well, with megacaps back on the leadership trail. Apple alone has added $300B in market value over the past 5 trading days. That is the same size as Nike and McDonald’s combined!
As the extra $600/week in unemployment aid ended in July, average payments drop down to $330 a week. That means millions of Americans will receive 65%+ less than what they were receiving over the past three months if nothing gets done in Congress soon. The debate on how much should be given to those unemployed from here remains one of many sticking points in the next stimulus bill negotiations. There are over 30 million people receiving unemployment aid, so this is a major factor in current and future spending. Republicans believe the extra $600 is too high. It encourages people to stay home and collect free money instead of going back to work and making less. This is true. Democrats say there aren’t enough jobs for everyone to go back to work and it’s better to keep them out of poverty at least through December. This is true as well. It would seem a payment tied to a State’s unemployment rate would be a nice compromise. A total payment equal to 80% of worker’s prior pay would also do the trick, but nothing in D.C is easy.
As every data point shows abnormalities or new records, one that stands out from the job numbers is the difference between genders. From a macro level, this recession has hit women much harder than men. Men are still an outsized portion of the construction, manufacturing, technology and finance industries. A normal recession hits these industries first, and hard, causing massive layoffs and cost cutting.
Women are still more prevalent in the public administration, hospitality, leisure and other service sectors. In this recession, a lot of these industries went to zero employees. This is much worse than your run of the mill decline in GDP.
The last three recessions saw women, as a percentage of the workforce, rise. This time, it collapsed. Restaurants, hotels and retail closures were the main source of layoffs. They all require the customer to be near employees, not to mention leave the safety of their own homes. During normal recessions, people still travel, shop at retailers or get their hair cut, even if it’s on a declining scale. Not this time around. Instead of dropping to 75% of capacity, we saw many places shut down entirely.
On the other hand, most construction sites remained open. Manufacturing plants were deemed essential. Finance, legal and software engineering jobs are more apt to adopt to work-from-home. More men have been able to retain their jobs, even in cyclical industries. This recession has been atypical in every sense of the word.
The closing of schools only exacerbates the issue. When dual working parents are subject to keeping children at home instead of going to class, someone has to stay home. America is better today than 20 years ago, but income inequality issues remain. On a percentage basis, men still make more money than women. That leads to tougher decisions when jobs start coming back but kids are not allowed to physically attend class. Perversely, maybe Covid accelerates change for the better on these income issues as well. Companies may have to pay more to get both parents back to work.
Looking ahead, we expect the next fiscal package to come together soon, sending more money to those in need. Covid case counts continue to trend down, leading to lower hospitalizations and death counts over a couple weeks. Second efforts on reopening will lead to further job gains over time. Helicopter money keeps flowing. Vaccine efforts are producing many promising alternatives. If China is any indication, we can get back to some sense of normalcy over the coming months, absent a 2nd wave of the virus. When money flow meets a resurging economy, markets will react in a different manner. More on that next time.
Local high school baseball standout Mike Trout turns 29 today. Flyers hockey nemesis Sidney Crosby turns 33. Actress Charlize Theron is 45.
James Vogt, 610-260-2214