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Monday, January 11, 2021

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Jobs data disappoints as longer-term optimism ramps up

The last full month of Trump’s presidency was dismal for the U.S. economy.

On Friday, we learned U.S. employers unexpectedly shed jobs for the first time since April. The hardest hit industries included those most sensitive to the COVID-19 pandemic, including leisure and hospitality, which saw employment drop by 498,000 payrolls.

The news further bolstered the urgent case for more emergency fiscal relief to those affected.

“The economy is in danger of sliding backwards here if the blue wave fiscal stimulus spending isn’t brought forward quickly in the first days of the Biden administration,” MUFG Chief Financial Economist Chris Rupkey said on Friday. “The Biden administration will be judged by what they do to support the economy in the first two weeks rather than the traditional measure of the first 100 days.”

The disappointing jobs report, however, did come with some silver linings including the fact that industries less sensitive to COVID were still growing.

“[If] it weren’t for strong gains in other industries, the employment report would have been even weaker,” Morgan Stanley’s Ellen Zentner said. “[B]ut those large declines in COVID-sensitive sectors, many of which may be temporary, were offset by quite strong gains elsewhere, with retail, manufacturing, construction, professional & business services, and health care jobs, among others, all growing quite robustly in December.”

Things are looking up

The idea that the underlying economy is in decent shape jibes bullishly with what’s shaping to be a “fiscal goldilocks” scenario: a divided government that’s capable of pushing through additional emergency fiscal support while being unable to advance tax policy seen as inhibiting growth in the corporate sector.

Indeed, following the results of last Tuesday’s Georgia runoff elections, economists across Wall Street boosted their forecasts for GDP growth in 2021. Some economists have even pulled forward their expectations for tighter Fed policy.

All of this sets us up for earnings season, which unofficially kicks off with the big banks on Friday. Analysts estimate S&P 500 (^GSPC) earnings fell by 8.8% in Q4, according to data compiled by FactSet.

As companies reveal how businesses performed at the end of 2020, analysts and investors will be listening carefully for more details on how much damage is being caused by the current wave of COVID cases and what management expects for the near-term future as vaccines get distributed and the political landscape becomes more clear.

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

Economy

  • No notable reports scheduled for release

Earnings

  • 9:15 a.m. ET: Carnival Corporation (CCL) is expected to report an adjusted loss of $1.86 per share on revenue of $132.7 million

Also: Big banks kick off Q4 earnings season, retail sales: What to know this week

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