Economic Outlook – 5 December 2021


• Nonfarm payrolls rose just 210K in November, a lot less than the +550K figure expected by consensus. Partially compensating for this disappointing result, the prior months’ results were upgraded by 82K. The private sector added 235K jobs. Employment in the goods segment sprang 60K thanks to gains in manufacturing (+31K) and construction (+31K). Services-producing industries, meanwhile expanded payrolls by 175K, with notable increase for professional/business services (+90K), transportation/warehousing (+50K) and leisure/hospitality (+23K). Alternatively, the retail sector shed 20K jobs. Employment in the public sector retraced 25K. Average hourly earnings rose 4.8% YoY in November, unchanged from the prior month

• November employment reports were contradictory to say the least. Non-farm payrolls came in much weaker than expected and that even after accounting for a sizeable revision to the prior months’ numbers. The household survey, on the other hand, showed much stronger gains. The details of the reports were rather encouraging, with private employment advancing at a decent pace and full-time positions registering and stellar increase. The sectors that had been most affected by social distancing measures – notably leisure/hospitality and education/health – registered only small gains, a sign the period of easy gains in those segments might now be over, with most businesses having now re-opened. Long-term unemployment, meanwhile, fell 136K in the month, a positive development since the consequences of joblessness tend to increase with duration

• The ISM Manufacturing PMI edged up 0.3 point to 61.1, a level consistent with very healthy expansion in the sector. Output growth accelerated (61.5 vs. 59.3 the prior month), and new orders placed at factories piled up at a faster clip (61.5 vs. 59.8). Production capacity at U.S. factories likely continued to be limited by severe supply-chain constraints. Indeed, while supplier delays shortened a tad (72.2, down from 75.6 in October), they remained quite long by historical standards. With demand outpacing supplier ability to deliver, customer inventory levels dropped further (25.1 vs. 31.7 the prior month) and input prices continued to soar (82.4 vs. 85.7), albeit less so than in the prior month. Despite widespread labour shortages, employment still advanced at its fastest pace since April (53.3 vs. 52.0) but this did not prevent work backlogs from piling up (61.9 vs. 63.6). Of the 18 manufacturing industries surveyed, 13 reported growth in November

• The ISM Non-Manufacturing PMI hit a new record high in November, climbing 2.4 points to 69.1. This was miles ahead of the median economist forecast calling for a 65.0 print. This result blew past consensus expectations calling for a 1.7-point decline. The business activity index jumped from 69.8 to 74.6, while the new orders tracker stayed put at 69.7. Both stood at record highs. The employment tracker climbed to a 7-month high of 56.5, signalling an acceleration of job creation in the sector. Expanded payrolls
did not prevent one of the fastest accumulations of work backlogs in the survey’s 24-year history. Supply chain frictions and inflationary pressure remained acute in the month; both the delivery times (unchanged at 75.7) and the prices paid (from 82.9 to 82.3) stayed near their all-time highs. All 18 services industries reported growth in November

• The Conference Board Consumer Confidence Index fell from 111.6 in October to 109.5 in November, a level far below the post-pandemic peak observed back in June (128.9) but still relatively high by historical standards. Although the survey’s deadline (November 19) did not allow consumers to internalize the arrival of a new COVID-19 variant on the world stage, the mood among households may still have been impacted by the deterioration of the health situation in the United States and abroad. Without
wishing to minimize the effects of the pandemic, household concerns regarding rising inflation had more of an impact over this period. Indeed, consumer inflation expectations for the next 12 months rose to 7.6% in November, the third-highest print recorded since data collection began in 1987

• According to the S&P CoreLogic Case-Shiller 20-City Index, home prices rose for the 114th consecutive month in September, springing a seasonally adjusted 0.96% after climbing 1.16% the prior month. Although solid by historical standards, this monthly gain was still the smallest recorded in 14 months, perhaps a sign that the moderation observed on the real estate market is starting to have an impact on home price growth. All the cities in the index saw higher prices in September, led by Tampa Bay (+2.51%), Miami (+2.19%), and Atlanta (+2.04%). YoY, the index was up 19.1%, down from 19.6% the prior month but still one of the sharpest 12-month jumps ever recorded. Prices were up 20% or more in no less than half of the urban areas surveyed

• After plummeting to a 50-year low of 194K, seasonally adjusted initial jobless claims rose to 222K in the week to November 27. This was still better than the 240K print expected by consensus and roughly in line with the indicator’s pre-COVID level. Continued claims, for their part, sank from 2,063K to 1,953K, their lowest level since March 2019

• According to the latest edition of the Fed’s Beige Book, overall economic activity in the United States expanded at a “modest to moderate” pace during October and early November, that is, at the same pace as in the previous period. While demand remained strong, growth was hampered by “supply chain disruptions and labor shortages.” Sales in some retail sectors, notably motor vehicles and parts, were held back by low inventories, while construction and manufacturing grappled with scarce material and labour. Alternatively, activity in the leisure/hospitality segment picked up as concerns regarding the Delta variant eased

• US Federal Reserve Chair Jerome Powell believes that the Omicron variant and a recent uptick in coronavirus cases pose a threat to the US economy and muddle an already-uncertain inflation outlook. He also said that worries over the variant could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply -chain disruptions. He added that the central bank could consider reducing the pace of its monthly bond buying, a topic that he expects to discuss at the bank’s December meeting. The International Monetary Fund said the Fed should tighten monetary policy at a faster pace in light of rising inflation risks

• Traffic at US retail stores on Black Friday dropped 28% compared with 2019 levels, as Americans shifted more of their spending online and started shopping earlier, according to preliminary data from Sensormatic Solutions. However, traffic was up 48% compared with year-ago levels

• In a volatile week of trading, the major equity indexes pulled back on news that the Federal Reserve could curtail its monthly asset purchases at a faster rate and fears that the emergence of the omicron strain of the coronavirus could weigh on global economic growth and contribute to supply chain disruptions. Large-capitalization stocks outperformed smaller- and mid-cap benchmarks. Within the S&P 500 Index, the communication services sector gave up the most ground. Utilities was the only sector to post a gain

• In terms of data release, the Trade balance print is out on Tuesday. Domestic demand has rebounded strongly over the past year, helping to fuel a faster pace of imports relative to exports. As a result, the U.S. trade deficit has widened in eight of the past 12 months, reaching a record $80.9 billion in September, as exports fell 3% over the month and imports gained 0.6%. While consumer demand has moderated, the need for businesses to replenish inventories will likely keep goods flowing into the country at an accelerated pace for some time

• The JOLTS is out on Wednsday. Demand for labor remains exceptionally strong. While the level of job openings has slipped for two months straight, at 10.4M in September, they remain historically high. Softening demand in the leisure & hospitality sector has fueled the overall pullback, likely under the pressure of the Delta variant. That said, October’s strong employment report and more recent data from suggest that the decline was temporary. It would not be surptising to see that openings increased in October, as the Delta wave was subsiding and businesses were ramping up hiring plans ahead of the holiday season


• Britain’s finance minister Rishi Sunak is preparing to cut income tax by 2 pence to the pound or to slash rates of Value Added Tax (VAT) before the next election, The Times reported on Friday. Sunak has told officials to draw up detailed plans to reduce the tax burden, with a third option to cut inheritance tax also under consideration, The Times said. His preference is said to be an income tax cut over the next three years as part of a “retail” offer before 2024, when the next general election is expected, the report added.
A Treasury spokesperson told Reuters, “We have been clear that we want to see taxes going down by the end of this Parliament and keep the tax system under review. We do not comment on speculation about specific tax change.”

• London’s FTSE 100 erased early gains to end lower on Friday as losses in miners eclipsed rise in energy stocks, while Wickes Group soared on an upbeat profit outlook. After rising as much as 0.9%, the FTSE 100 (.FTSE) ended 0.1% lower as base metal miners (.FTNMX551020) declined, tracking weakness in copper prices. Limiting losses were oil majors BP (BP.L) and Royal Dutch Shell up 1.3% and 0.8% respectively as crude prices jumped after the producer group OPEC+ said it could review its policy to hike output at short notice if oil demand collapsed. Insurer Prudential (PRU.L) climbed 0.6% and Legal & General Group (LGEN.L) rose 0.6% after German peer Allianz (ALVG.DE) raised its targets for shareholder returns for 2022-24


• The flash estimate for the Consumer Price Index showed that prices rose 4.9% YoY in November, eight ticks more than in October and the highest reading since the inception of the series in the early 2000s. Energy prices spiked 27.4% from their level a year earlier, while the cost of food, alcohol and tobacco climbed 2.2%. The core CPI, which excludes these four items, progressed from 2.0% to an all-time high of 2.6%. The Producer Price Index, meanwhile, soared 21.9% in the 12 months to October, another record

• Euro area retail sales rose 0.2% in October, after dropping 0.4% in September, as consumers spent more on nonfood purchases, Eurostat data showed. Meanwhile, consumer sentiment weakened for a second consecutive month in November, according to a survey by the European Commission. Households are less upbeat about the general economic situation and their intentions to make major purchases

• Shares in Europe posted mixed results after a volatile week of trading, highlighted by concerns about the omicron variant and further evidence of inflationary pressures. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.28% lower, while Germany’s Xetra DAX Index gave up 0.57%. France’s CAC 40 Index rose 0.38%, and Italy’s FTSE MIB Index gained 0.33%

• The governors of the ECB are considering delaying part of a decision on the central bank’s stimulus plans as the outlook has become murkier due to the new coronavirus variant and mounting price pressures, sources said. The ECB’s Governing Council will meet on 16 December to decide whether to end its emergency bond purchases in March and how much debt to buy after that date


• China’s factory activity unexpectedly rose in November for the first time in three months as surging raw materials prices and power rationing eased. The official manufacturing Purchasing Managers’ Index (PMI) rose to 50.1 in November from 49.2 in October. Readings above 50 indicate growth, while those below 50 indicate contraction. However, the official gauge stood in contrast to the private Caixin/Markit Manufacturing PMI, which fell to 49.9 in November from 50.6 in October. The Caixin/Markit Services PMI fell to 52.1 in November from 53.8 in October, indicating a slowdown in service sector activity

• On Friday, Kaisa Group said that it failed to receive bondholders’ approval to extend the maturity of a $400 million note due next week, making it the latest Chinese property developer to edge closer to default. A restructuring for Kaisa is a likely outcome and that a restructuring could result in a recovery rate higher than where its bonds are currently trading. The last restructuring for Kaisa—which gained notoriety in 2015 when it became the first Chinese developer to default on its dollar bonds—took 1.5 years, and the process could be just as slow this time around, they cautioned

• China’s government could issue some kind of policy response to help the ailing property sector as the effects of recent defaults start to spread from the offshore high yield bond markets into Chinese investment-grade bonds and eventually the domestic economy. Moreover, they note that some developers have started to sell off assets, repay debt, and undertake other “self-help” measures to raise liquidity

• Chinese stocks recorded a weekly gain despite a resurgence of U.S.-China tensions after Chinese ride-hailing app Didi said it would delist its U.S.-listed shares from the New York Stock Exchange. The CSI 300 Index rose 0.84%, and the Shanghai Composite Index added 1.2%. News of Didi’s delisting came shortly after the U.S. Securities and Exchange Commission said that Chinese companies that list on U.S. stock exchanges must disclose whether they are owned or controlled by a government entity and provide evidence of their auditing inspections

• Sources: T. Rowe Price, Wells Fargo, National Bank of Canada, MFS Investment Management, Reuters, M. Cassar Derjavets.