U.S. Indicators Positive Heading into Jobs Report Friday
•The ISM Services Index for November dipped to a still-positive 55.9.
•Initial Claims for Unemployment Insurance fell by 75,000 for the week ending Nov. 28, to hit 712,000.
The ISM Services Index for November eased to a still-positive 55.9, down from 56.6 in October. This coincides with the positive, but moderating, trend in the ISM Manufacturing Index that we reported on Tuesday. Eight out of ten sub-indexes were positive for the month, including production, new orders and employment. Only the inventories and inventory sentiment sub-indexes were slightly below the break-even 50 mark. The four industries reporting contraction in November were arts and entertainment, other services, real estate and educational services. Many anecdotal comments reflected the challenges businesses are facing due to increasing COVID-19 related issues.
The moderating, but still-positive, numbers for both the ISM Manufacturing and Services Indexes for November reflect both the resiliency of the U.S. economy and the immediate risks of surging COVID cases. Many states and local governments have tightened social mitigation policies in response to rapidly filling hospital capacity. We expect both of those trends to continue through December. The impending distribution of vaccines puts a floor under the downside risk for the pandemic, and is supporting business and consumer confidence, but it does not reduce the immediate stresses that businesses are feeling. We expect those stresses to increase before they get better. The combination of increasing stress to businesses from the coronavirus pandemic and the threat of multiple economic cliff effects with the upcoming expiration of special programs puts the U.S. economy at meaningful risk of decreasing GDP in 2020Q1. A stop-gap fiscal package from Congress within the next week or so could reduce some of the economic drag. We expect the Biden Administration to promote a large scale stimulus package early in 2021 even if the currently proposed stop-gap measure passes. It is important to note that if we do see declining GDP in 2020Q1, we do not expect to see the event compound into a deeper recession in 2020Q2. The promise of vaccines, active monetary and fiscal policy plus increasingly confident businesses and consumers will be a potent positive combination for the U.S. economy after we get through the next difficult few months.
Initial claims for unemployment insurance fell by 75,000 for the week ending November 28, breaking the ominous increasing pattern from the previous two weeks. Initial claims hit 712,000 for the last week of November. They look essentially stable through the month. The good news is that they have not gotten worse. The bad news is that they have not gotten much better. They are still at a level about 3.5 times the pre-crisis baseline. Continuing claims for the week ending November 21 fell sharply, down 569,000 to hit 5,520,000. Two forces are at work there. Some people are gaining jobs, others are losing benefits while still unemployed. The total number of people receiving some form of unemployment benefit remains elevated at 20,163,477. If there is no extension to the special programs provided by the CARES Act, that number will decline significantly when the special benefits programs expire at the end of this year.
Labor market conditions are choppy. We expect to see a gain of about 400,000 net new payroll jobs in November when the official data is released tomorrow morning. The big drop in the unemployment rate last month, from 7.9 percent in September, to 6.9 percent in October, will likely not be repeated. We expect to see something around 6.6 percent for November.
Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year Treasury bonds is down to 0.93 percent. NYMEX crude oil is up to $45.57/barrel. Natural gas futures are down to $2.53/mmbtu.
For a PDF version of this publication, click here: November 2020 ISM Services, UI Claims
