United States
  • Following a four-week losing streak, U.S. financial markets regained some gusto, buoyed by optimism on the prospect of a new stimulus package.
  • The labor market continues to mend, albeit at a decelerating pace. The American economy added 661,000 payroll jobs in September, down from 1.5 million in August. Meanwhile, the unemployment rate fell to 7.9%, in part because of a pullback in the labor force participation rate.
  • The House passed a $2.2 trillion coronavirus relief bill this week, but it will not pass the Senate. Talks between Speaker Pelosi and Treasury Secretary Mnuchin continue, but a deal has yet to be reached.



U.S. – Healing, but Slowing Labor Market


Financial News- Drop in Labor Force Participation Rate Following a four-week losing streak, financial markets regained some gusto, buoyed by optimism on the prospect of a new stimulus package. Sentiment soured late in the week however, as news broke that President Trump and the first lady tested positive for COVID-19. Still, the S&P 500 is on track to end the week about 2% above last week’s close (as of writing).

The release of employment data for the month of September was this week’s main economic highlight. The report showed ongoing, albeit decelerating progress in the labor market recovery. Indeed, 661,000 payroll jobs were added last month, down from 1.5 million in August. Overall, 51.5% of non-farm payrolls lost since the pandemic began have been recovered. The unemployment rate fell from 8.4% to 7.9% in September, a welcome improvement, but a markedly slower pace than in previous months. More concerning, the drop was due in large part to a pullback in the labor force participation rate (Chart 1) rather than strength in job growth.

The theme of a stalling labor market recovery was also borne out in the jobless claims data. Indeed, new filings for unemployment benefits have held stubbornly close to the 900,000 per week mark since the end of August, signaling that businesses continue to lay off workers at an elevated rate. While continuing claims have trended lower over the past few weeks, they remain well above pre-crisis levels.


Financial News- Expanded Unemployment Benefits Expiration ChartUnfortunately, as the $600/week federal unemployment top-up expired at the end of July, many people saw their income take a big hit in August. In fact, a 52% decline in unemployment benefits resulted in personal income falling by 2.7% month/month in August (Chart 2). While personal spending continued to make up lost ground, advancing by 1.0% on the month, the decline in incomes poses a downside risk to the recovery. What is more, spending on durable goods, which powered the early rebound in consumption, is showing signs of fatigue, while the recovery in services spending is also slowing. The latter is now in jeopardy due to a resurgence in new coronavirus cases.

Similar concerns were echoed in the September ISM Manufacturing report. The Index registered a worse-than-expected 0.6 point retreat to 55.4, pointing to a slower pace of expansion in the manufacturing sector. The details of the report showed a recovery that remains uneven, with a slew of industries continuing to contend with sluggish demand.

On a more positive note, new vehicles sales soared by 7.6% month/month in September to 16.3 million units. Alongside home sales, auto sales are one of the few economic indicators to have exhibited a “V-shaped” recovery and are now within 2.5% of their pre-crisis level from February.

All things considered, the balance of risks to the economic outlook remains tilted to the downside. The absence of a new stimulus package is beginning to take a toll on the recovery. Talks between House Speaker Pelosi and Treasury Secretary Mnuchin continued this week, but a deal has, so far, remained out of reach. Here’s hoping that Democrats and Republicans can close the gap and come to an agreement sooner rather than later.

Johary Razafindratsita, Economist | 416-430-7126

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