Labor market might need even more stimulus
Weekly Bond Commentary
Financial markets entered 2021 with blinders on, focusing on vaccinations and potential fiscal stimulus.
The Democratic win in the Georgia Senate races smooths the path for incoming President Biden and increases the chance that he will be able to enact his agenda. Markets focused on the likely additional stimulus checks to individuals, as well as help for struggling states and cities. Both would help economic growth but would require additional federal borrowing, which pushed up Treasury yields.
The monthly employment report showed that the economy could probably use the additional stimulus help. Total nonfarm payrolls fell by 140,000, while the unemployment rate stayed steady at 6.7%, ending a recent improvement trend in both measures. The main driver of the weak report was a nearly 500,000 job loss in the leisure and hospitality sector, which continues to be battered by rising virus case counts and targeted shutdowns. One bright spot was in growth in construction and manufacturing employment, casting into stark relief those businesses that can operate socially distant from those that cannot.
The outlook for 2021 appears positive with the large caveat that the virus must be brought under control before much more permanent damage is done.