Investors Absorb October Surprise and Slowing Job Gains
As news emerged early Friday morning that the President and the First Lady tested positive for coronavirus, some investors may have wondered if this was the “October Surprise” they feared. Though stocks were down by more than two percent in the futures market, the damage was not too severe on the day, with the S&P 500 dropping about one percent.
Still, if the President of the largest economy in the world becomes more seriously ill, investor anxiety will remain high. Add to the shocking news of the positive tests, the fact that the September jobs report showed that the pace of economic progress is slowing down and additional stimulus talks have failed to produce more help for Americans and the economy, and all of the sudden, it looks like regardless of the election outcome, the fourth quarter is going to be a tough one.
Digging into the last employment report before the election, a few details stand out. The economy added a lower than expected 661,000 new positions in September, but offsetting some of the miss was the fact that revisions to the previous two months added an extra 145,000.
Still, the September reading was the smallest rise in payrolls since the job recovery began in May and a significant deceleration from the spring bounce back. Note: recent announcements of layoffs from airlines (American, United), Disney, publisher Houghton Mifflin, insurer AllState, and designer Ralph Lauren, were not included in the September report.
The U.S. now has 10.7 million fewer workers employed than it did in February. To put that into perspective, for the five years starting in 2015 through 2019, the economy added a total of just over 11.6 million jobs, so the pandemic has wiped out almost five years of job gains. At the current pace, it would take another 16 months for the U.S. to regain the pandemic jobs lost.
The unemployment rate fell from 8.4 percent to 7.9 percent, but partially for the wrong reason, the number of people who are in the workforce (the “participation rate”) dropped to 61.4 percent, two percent lower than it was before the pandemic. Front and center of those opting out, are women, especially those with school-age children.
The September jobs report syncs up with findings from “Women in the Workplace 2020”, an annual analysis conducted by McKinsey & Company and Lean In, which surveyed more than 40,000 people across 317 companies from June to August of 2020.
McKinsey found that “more than one in four women are contemplating what many would have considered unthinkable just six months ago: downshifting their careers or leaving the workforce completely.” This was the first time in the six years of the survey that women appear to be leaving the workforce at higher rates than men, with as many as two million women considering leaving the labor market. If the trend were to hold, this would be bad news for the closing of the gender wage and promotion gap.
The September jobs report also highlighted the racial employment gap. Diane Swonk, Chief Economist at Grant Thornton noted, “The unemployment rate for Black workers held at 12.1 percent in September, nearly double the unemployment rate for white workers. White workers are being hired back much more rapidly than Black workers, which is exacerbating inequality.” The unemployment remains stubbornly high for Hispanic Americans too, 10.3 percent.
According to the Federal Reserve’s Survey of Consumer Finance for 2019, inflation-adjusted net worth (the difference between families’ gross assets and their liabilities) rose 18 percent between 2016 and 2019 to $121,700. Over the time period, Black non-Hispanic and Hispanic families saw big gains, but even with the progress, “the typical White non-Hispanic family still had more than double the amount of wealth than the typical family in any other racial or ethnic group in 2019.” Under the hood of the Fed’s report, the details are sobering:
White non-Hispanic family wealth: $188,200
Hispanic or Latino family wealth: $36,200
Black non-Hispanic family wealth: $24,100
Where does this leave us? The economy is recovering, but the pace is slowing. The pandemic continues to wreak havoc on household finances, especially for low-wage workers, people of color, and women. As the country grapples with the President’s diagnosis, the September jobs report shows that economists and Fed officials are rightly concerned that there needs to be additional stimulus to protect at-risk Americans and to propel the seemingly-stalling recovery.
MARKETS
Even with the recent market wobbles, the broad market remains UP on the year. The S&P 500 is ahead by 3.6 percent , and the NASDAQ Composite is up 23.4 percent. Big tech leadership is among one of the most pronounced developments of the pandemic market recovery. At the beginning of 2020, Apple, Microsoft, Alphabet, Amazon and Facebook made up 18 percent of the total market cap of the S&P 500, which matched the tech bubble high, according to Morgan Stanley. The share increased to 21.7 percent at the end of September, which was down from a peak of 23.9 percent in August, according to Leuthold Group research.