Expectations from the US payrolls report, fiscal expansion issue

Following the report, which pointed to a 638 thousand employment increase in October in the USA, an increase of 475 thousand people is expected in the November non-farm payrolls report to be announced tomorrow. While the unemployment rate is expected to decrease to 6.8%, the private sector is expected to create 545 thousand new job positions.

Despite the market forecast that employment positions continue to increase, the epidemic restricts recruitment in certain sectors. As a matter of fact, in October, non-farm employment showed the lowest increase during the recovery phase from the Covid-19 crisis. Worryingly, the outlook for unemployment claims above 700K on a weekly basis continues. Data received today show that there were 712K unemployment applications last week. ADP, another labor force indicator announced this week, pointed to a 307K increase in the private sector. The situation is a little more negative in ISM's employment indicators. At the beginning of the week, the employment index of ISM manufacturing in November had passed into the contraction zone with 48.4. It points out that we will see a loss of employment in the manufacturing sector. But as the pandemic hits the core service sector, the impact here may lead to a wider weakening in employment. For this reason, the data is not unlikely to surprise the downside.

A certain amount of unemployment becomes permanent in the employment market, so fiscal expansion is important in order to avoid stagnation due to the decline in real incomes. Democratic leaders Pelosi and Schumer are proposing a bilateral stimulus of 908 billion USD as the basis for a new round of negotiations with the Congress Republicans and the White House. Whether this package will go to President Trump is still unclear. Incentives should continue until the vaccine saves the economy. An aggressive Fed expectation is also rising.

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