Election uncertainty and Covid-19 threaten US jobs market recovery

The US labour market continues to recover robustly. However, rising cases of Covid-19 and the absence of a ‘blue wave’ emerging from the US presidential election could derail the recovery.

Payrolls better-than-expected

Non-farm payrolls rose by 638k in October - well above the Bloomberg consensus of a 580k increase.

When looking at the details of the labour report, the October numbers look particularly encouraging as the overall job gain would have been larger without the loss of 147k temporary 2020 Census workers. The private sector added 906k jobs over the month.

The unemployment rate also beat expectations, falling sharply from 7.9% in September to 6.9% in October. More importantly, the participation rate rose over the month signalling that more people are actively looking for work.

Covid-19 threat

The participation rate had fallen sharply in the spring as coronavirus related restrictions made job hunting futile and even risky. The risk of a slowdown in the labour market in coming months is, however, elevated as the virus continues to spread at an alarming rate.

On 5 November, the US reported more than 100,000 positive Covid-19 cases in a single day for the first time.

Biden favourite but no Senate majority

Finally, the absence of a ‘blue wave’ emerging from the US presidential election reduces the prospective size and scope of future fiscal stimulus.

At the time of writing, a Biden presidency is almost certain as the Democratic candidate has recently taken the lead in Georgia and Pennsylvania.

However, the Democrats appear to have failed to win control of the Senate, which will limit the administration’s power in pushing through fiscal stimulus.

Moreover, as the transition of power will take a couple of months, new stimulus is unlikely before the end of the first quarter of next year. That will leave a funding gap for households that continue to be adversely affected by the pandemic.

This is likely to cause household demand to slow, and for companies to pull back re-hiring, and may increase redundancies.