U.S. economy adds 245K jobs, unemployment rate falls to 6.7%

MKM Partners Macro Strategist & Chief Economist Michael Darda joins Yahoo Finance Live to break down the latest jobs report.

Video Transcript

ZACK GUZMAN: I want to shift over to what it means for the markets here, though, with our first market guest of the day-- Michael Darda is MKM Partners' macrostrategist and chief economist. Michael, appreciate you coming on here to chat. When we look at this report, what stands out to you, because people might focus in on the year end 6.7% unemployment rate and say, look, that's much better than a lot of people expected we'd be at earlier on in the pandemic. Others might point out, though, that a lot of that's due to more and more people permanently leaving the labor force right now. So what do you make of today's report?

MICHAEL DARDA: Right. Well, I think it's a disappointment for sure. We came in below the consensus expectations. That really shouldn't be a total shock, because we did see some upward pressure on jobless claims coming into November. This past week, the numbers fell, but previously, we had started to see some upward pressure there that very well could be the direct impact of the pandemic getting worse, and then a resumption of economic restrictions being imposed to deal with that.

So the numbers were certainly softer, a disappointment, but shouldn't be a complete shock. The question is, the market is very optimistic, so what is that all about? And I think what it's about is simply investors looking over the horizon, focusing on the potential for another stimulus bill that's close to a trillion dollars being enacted in the lame duck, and once a vaccine is distributed and disseminated next year, along with better therapeutics, then we have prospects of boom conditions starting to unfold. And I think that's what the market's focused on.

AKIKO FUJITA: Michael, the concern appears to be that despite these softer numbers, this data that we got today doesn't even begin to really address the most stringent restrictions that we have seen come into play over the last several weeks. It's concerning that things could go back to where they were around April or May. To what extent do you think stimulus can provide a support on this level, if we're just talking about the $908 billion, roughly, that has been put forward?

MICHAEL DARDA: Right. It's true. So I don't think we're going back to the March, April period, simply because it's not realistic that we end up with indiscriminate lockdowns. So what's happening now is much more targeted, much more piecemeal. So we're not going to have a complete shutdown and collapse in the economy like we saw in April, for example.

As far as the stimulus goes, it would be better if these measures were targeted appropriately, simply to help people get over that hump into next year, when we can see a more full throated recovery in some of the hardest hit industries, in particular, leisure and hospitality. Some of these areas simply are not going to be able to revive until the virus is under control, and it's not under control at the moment.

ZACK GUZMAN: When we talk about that sector by sector look at things here, interesting to see hospitality still lagging in that recovery, but also transportation jobs. We're talking about how important the holiday shopping season is going to be. We're going to be discussing how to stretched some of those logistical delivery networks might be, due to the surge in e-commerce here. But that seemed to be a standout to watch here. Were there are other segments of the economy, when we break down which ones seem to be adding jobs right now that stood out to you?

MICHAEL DARDA: We've had pretty consistent gains in health care, in private sectors, services, professional services, has been adding jobs. If we take a look at what's really depressed, relative to the pre-pandemic trends, it's really focused on services spending. So retail actually came flying back, but that was due to a mixed shift in the composition of spending due to sheltering in place.

And so we can look forward next year to that reversing, to some degree, and spending on services recovering at a stronger pace than what we've seen just recently. We're still about 8% below-- 8% plus below the pre-pandemic trend, so there has been a recovery, even in the services side for spending, but that gap could very well completely close by the end of next year if growth surprises to the upside, and I think that's what the market is focused on now.

AKIKO FUJITA: Michael, I want to get your thoughts on a number I think you alluded to in your earlier answer, which is those of long term unemployment. We're talking about an uptick of about four million now, so roughly 37% of those who are unemployed have now been unemployed for about 27 weeks or so. How many of those do you think actually are likely to drop out of the labor force altogether? How should we be looking at that number?

MICHAEL DARDA: Yeah, I think all of that is going to hinge on how robust the expansion is next year. And if we can look forward to double digit nominal demand growth, which is not out of the question, I think we're going to be quite surprised that by year end, we're back to some semblance of full employment, and some of those structural issues then won't linger as long as widely feared.

If it doesn't play out that way, and there are problems with the vaccine, or policy simply makes an abrupt turn and the recovery disappoints, then we're going to have to worry much more about figures like that. One that I would tell viewers to watch closely is the prime age employment to population ratio. That ratio is not adulterated by either demographics or dropouts from the labor force. We've covered pretty strongly there. It was just flat this past month, but we're still five percentage points or so-- four or five percentage points below where we were topping out in the last cycle. So there's a ways to go yet on all of these labor market indicators, but the prospects for quite strong growth next year will tell the tale.

ZACK GUZMAN: Yeah, and as we continue to watch all those numbers, it still seems like the easy jobs that were supposed to come back as we reopened, they came. Now we'll keep our eyes on some of those jobs with those permanently unemployed as we continue to track those numbers. Appreciate your time there. Michael Darda, MKM Partners' macrostrategist and chief economist. Thanks again. Have a great weekend.