Last Friday, the jobs data in the United States revealed worsening conditions in November. The Non-Farm Payrolls (NFP) report showed only 245k new jobs, half of what the market expected.
This is one of the key reports of every month, as the U.S. is the largest economy in the world. Because of that, what happens in America affects other markets too.
Details of November NFP Report
Besides missing expectations, the report revealed worsening conditions. More than six months into the pandemic, the world’s largest economy still has millions of people unemployed or living on unemployment benefits.
The biggest issue and one of the key aspects come from permanent unemployment. Unfortunately, the rising trend did not change in November. Instead, permanent unemployment accelerated. 4.7 million Americans are permanently unemployed, and the rise is faster when compared to the previous two recessions.
Another negative from Friday’s report is the unemployment duration. The report showed that one out of two individuals has been unemployed for more than fifteen weeks. Moreover, 37% of those unemployed have been so for almost thirty weeks.
Finally, the previous month’s data was revised lower. Therefore, we can say that the NFP report showed a weak economy, one that remains dependent on fiscal and monetary stimulus.
Despite the poor economic data, the stock market rallied continued. This kind of divergence should be expected to continue moving forward into 2021 for at least a few reasons.
First, the new Washington administration has more fiscal stimulus on the top of its agenda. We do not know exactly the form of it, but should it be financed by Treasury issuing more debt, then the lower U.S. dollar trend should continue.
Second, the Fed promised to keep the rates lower for as long as needed. It even plans to extend the quantitative easing program and announce it next week. As a result, the yield curve remains depressed, and investors will have few or no alternatives to park their capital but to the stock market.
Third, the negative pandemic news might already be priced in the market. However, the recovery is not, and so investors try to position themselves earlier so as to take advantage of the upcoming rally.
Yet, higher stock market prices should have some support from the economy. Rising permanent unemployment remains a problem, as the economy cannot function on stimulus only.