Markets were higher in morning trading as new Labor Department numbers showed that nonfarm payrolls increased by 531,000 for the month of October, above expectations.
Spencer Platt/Getty ImagesIt’s all good, at least insofar as the stock market is concerned. The major indexes again ended the week at records amid continued good news on the economy and Covid-19, along with no surprises from the Federal Reserve and no bad effects from the shock waves of Tuesday’s off-off-year election results. All of which fits the definition of a bull market.
The week’s strong economic reports were capped by Friday morning’s report of better-than-expected employment gains in October, significant upward revisions for the previous two months, and a further dip in the jobless rate. The one discordant note: Folks aren’t being drawn back into the workforce as quickly as expected, leaving employment still well short of prepandemic levels. That means further pay raises, good for workers, less so for inflation. (For more on this, see page 31.)
The Fed’s goal of maximum employment remains ahead. As universally expected, the central bank announced this past week that it will begin tapering its monthly purchases of $120 billion of Treasury and U.S. agency securities—more than 1½ years after it began its emergency policies during the worst of the pandemic-fed crisis, and after stocks have more than doubled from their lows and house prices have had record annual gains.
While the Federal Open Market Committee voted to trim its monthly bond buying by $15 billion, Fed Chairman Jerome Powell indicated that the monetary authorities aren’t even talking about talking about raising the key federal-funds target rate off the current floor of 0% to 0.25%. And taking a page from a former Supreme Court justice’s view that he couldn’t define obscenity, but knew it when he saw it, Powell said the definition of maximum employment couldn’t be nailed down to a single number, but we’re not there yet.
The latest figures were almost all good, notably a 531,000 rise in nonfarm payrolls for October, well above the 450,000 consensus guess from economists, while the two preceding months’ tallies were revised upward by a total of 235,000 jobs. The one negative was state and local education, which shed 65,000 workers last month and 102,000 in September. The seasonal adjustment factors, which detract from the totals, might be out of whack. But the exodus of educators from the public schools has been an ongoing trend amid widespread anecdotes of burnout during the pandemic.
In the separate survey of households, the headline jobless rate dropped by 0.2 percentage points, to 4.6%, as the 359,000 rise in employment outpaced the 104,000 increase in the labor force. But the labor-force participation rate remained stalled at 61.6%, near where it has been for a year. The end of extraordinary jobless benefits, the reopening of schools, and the diminishing risk of Covid-19 had been thought to attract more people back into the workplace; that’s not happening, at least to the extent expected.
Part of the blame goes to a surge of retirements, family-care needs, and discouraged workers. Each of these factors has taken 1.2 million people out of the workforce, according to Bank of America economists Aditya Bhave and Stephen Juneau.
“This cuts both ways for the Fed,” they write in a research note. The damage to less-advantaged groups argues for continued easy policies. But the continued low labor-force participation means a tight labor market and continued wage inflation, which is a reason for tighter policies, they conclude.
For now, however, the Fed and other major central banks appear disinclined to soon raise short-term rates. The Bank of England on Thursday opted against a hike, a decision that sent yields lower across global government bond markets. And the benchmark 10-year Treasury note ended the week at 1.45%, down from 1.60% after the Fed’s tapering announcement.
Tuesday’s red wave, which swept over Democrats in local elections, most notably in Virginia, had less impact on Wall Street than in Washington. Those results evidently concentrated the minds of Democrats like the gallows, writes Greg Valliere, chief U.S. strategist for AGF Investments. By late Friday, the House leadership was pressing ahead with votes on the Senate-passed infrastructure bill and the more contentious social spending measure with a $1.75 billion price tag.
The cliché that Wall Street likes D.C. gridlock may prove no more than half-true. “This could be shaping up as a win-win for the markets,” Valliere writes in a client note. Approval of the infrastructure package would boost a wide range of companies, while the social spending bill, featuring tax hikes and cradle-to-grave spending, could languish through the winter, he adds.
Added to this benign mix of fiscal and monetary policies was word from Pfizer (ticker: PFE) on Friday of an antiviral drug that works even better than Merck ’s (MRK) to prevent hospitalization or death from Covid. For the markets, and everyone else, this time good news is unequivocally good news.
Write to Randall W. Forsyth at randall.forsyth@barrons.com
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A Good Jobs Report Points to Continued Good Times for Stocks - Barron's
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