The Unemployment Rate Fell to 6.9%

By | November 9, 2020

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.


Global stocks were little changed but near a record high, while the dollar and bond yields remained sluggish on Friday on bets a divided U.S. Congress would hinder government borrowing, which could smooth the way towards more central bank stimulus. Investors expect Joe Biden will beat President Donald Trump, but the Republicans will keep control of the Senate, allowing them to block corporate tax hikes and spending on infrastructure. MSCI’s all-country index was flat on Friday after gains earlier in the week, still close to the record reached in September. Europe’s main index, the STOXX 600 opened Friday, up 0.4%, with investors dimmed by the economic toll of new lockdowns in Europe and Italy and France recorded record cases of COVID-19. With the virus raging, investors expect more monetary stimulus.

U.S. stocks closed mostly lower Friday, ending a four-day winning streak yet still eking out the best week since April as investors shifted through October employment data, continued to watch election results and weighed a surge in COVID-19 cases. The Dow Jones Industrial Average fell 66.78 points, or 0.2% to close at 28,323.40, while the S&P 500 lost 1.01 points to close at 3,509.44. The Nasdaq Composite rose 4.30 points, less than 0.1% to finish at 11,895.23. For the week, the Dow gained 6.9%, the S&P 500 rose 7.3% and the Nasdaq added 9%, the best week since April 9 for all three benchmarks. The election week rally was attributed in part to expectations for a Biden win coupled with diminishing chances of a Democratic takeover of the Senate which would make it more difficult to repeal the 2017 corporate income tax cut of tighten financial regulations. The market has a narrative: A Democratic President who does not control the Senate, will be more favorable to trade but is limited on fiscal policy. 

Initial claims for unemployment insurance benefits declined slightly to 751,000 in the week ending October 31. New filings for Pandemic Unemployment Assistance were little changed at 363,000. Meantime, continuing claims for unemployment insurance benefits continue to signal improvement, falling from 7.82 million in the week ending October 17 to 7.29 million in the week ending October 24.  The labor market continues to show improvement, but the pace is very slow. The forecast calls for employment growth to moderate in the fourth quarter. A sustained recovery will not commence until a vaccine is found. Risks to employment growth are high as new infection haves increased recently.

As of this writing, the outcome of the U.S. presidential election is undecided. Joe Biden, however, appears likely to become president based on his growing lead in several key states. The week started with good news from the manufacturing sector. The ISM manufacturing index soared to 59.3 in October. The monthly jump was fueled by sizable gains in new orders, inventories and employment. The improvement was well above expectations. The recent strength is partly due to the swift rebound in COVID-related goods spending, which has led to a draw-down in inventories and a jump in new orders from wholesalers and retailers. By contrast, the service ISM index declined to 56.6 in October from 57.8 in September. The details were generally weaker than in September as business activity, new orders and employment fell. Progress in the service sector, two-thirds of GDP, has been slower. Once a vaccine is discovered and distributed, the service sector will respond favorably, but it may take time to see noted progress in that sector of the economy. 

Total payrolls rose by 638k in October. The unemployment rate fell to 6.9%. Growth continues to slow but still is maintaining good momentum. For the second straight month, government payrolls contracted by 200,000, mostly a result of temporary Census workers coming off the books. As of October, employment was still down by 10 million from February and there are 11 million workers without jobs, about twice as many as in February. It will still take a couple of more years to reach full employment, with the expectations of a vaccine this year.Next week, we get a look at the NFIB small business optimism index, CPI and PPI and JOLTS data.

Latest Data

The U.S. Economy:

Factory orders increased 1.1% in September, following a 0.7% increase in August. September marked the fifth consecutive month of increases. Durable goods orders increased 1.9% in September and nondurable goods rose 0.3%.  Total shipments were up 0.3% for s second consecutive month. The important core capital goods orders sector rose 1.0% after increasing 2.4% in August. Factory orders imply that business investment has some momentum moving into the fourth quarter. All told, manufacturing conditions improved in October, but rising COVI019 cases are rising in the U.S. and in Europe and the lack of fiscal stimulus could weigh on factory conditions in the next few months.

Construction spending increased 0.3% in September after posting a 0.8% advance in August. Residential construction spending was again the driver of September’s increase, rising 2.8%. Single-family home saw a 5.7% surge and was up 8.2% from a year earlier. Spending on new multi-family homes increased 1.2% and was up 13.1% from a year earlier. Nonresidential construction spending saw a 1.5% decrease in September, down 6% from a year earlier. Public construction spending declined 1.7% and was down 1.3% y/y. Of the largest components, spending on highway and street spending fell 5.4% and was 6.3% lower y/y. Housing leads the construction sector, in which total construction has been positive since May. However, the pandemic has hurt the nonresidential sector. Public construction has been negative for four consecutive months. Prospects will improve when a vaccine is available, but it may take time to control the virus and rebuild confidence. 

The ISM manufacturing index jumped from 55.4 in September to 59.3 in October. Details were more favorable in October. New orders increased from 60.2 to 67.9. Sixteen out of 18 industries reported growth in new orders. The production index rose from 61 to 63. According to the ISM, a production reading of around 51.7 is consistent with growth in industrial production. 11 out of 18 industries reported growth in production. The employment index increased from 49.6 to 53.2 in October. The supplier deliveries index increased from 60 to 60.5. The inventories index rose from 47.1 to 51.9. The prices paid index rose from 62.8 to 65.5. The breadth of manufacturing increased in October. Anecdotes were generally positive about sales. A respondent in chemical products described business as robust and one in machinery said business was almost back to normal. Fundamentals for business spending are mixed. Equipment spending has been decent but structure spending lags. A lot depends on the virus and the emergence of a vaccine and how the economy evolves around the pandemic. 

The U.S. nominal trade deficit narrowed from a revised $67 billion in August to 463.9 billion in September. Nominal exports were up 2.6% in September, while imports increased 0.5%. Although the deficit improved in September, it is wider than what was trending before the pandemic. The strong dollar and the gap between U.S. and global GDP is partly behind the increase in the deficit. Trade esports have been slow to recover and likely will remain so until a vaccine is discovered. 

U.S. vehicle sales were strong in October, rising from a seasonal adjusted annualized rate from 16.6 million the month preceding to 17.2 million. Sales were up 3.5% on a month-to-month basis for both cars and light trucks. Sales were up 1% from a year earlier. Light truck sales reached an annualized rate of 13.2 million units in October, while cars totaled 4 million. New vehicle sales have largely recovered from the April trough, haven risen more than 90% from April. Much of the increase has been domestic-made vehicles. Of the 8.2 million-unit increase since April, 6.2 million have been domestic brands. Vehicle sales and production are likely to rise in the near term. However, rising COVID-19 cases are a downside risk. 

The ISM non-manufacturing index came in weaker than expected in October as the number of COVID-19 cases soared and it has a greater effect on services. The service index fell from 57,8 in September to 56.6 in October. Details were generally weaker than in September. The business activity index dropped from 63 to 61.2 in October. Sixteen industries reported growth in business activity in October. New orders dropped from 61.5 in September to 58.8 in October. Fifteen industries reported growth in new orders. The employment index fell from 51.8 to 50.2. The supplier deliveries index rose from 54.9 to 56.2. A reading above 50 indicates slower deliveries. Inventories rose from 48.8 to 53.1. Seven industries reported growth in inventories. Future progress will be driven by the progress of the virus and the vaccine. A full recovery in the service sector will take some time after the vaccine becomes available. 

The labor market continued to recover in October, with better results than expected. Payrolls rose by 638,000 in October, following a upwardly revised gain of 672,000 in September. The unemployment rate fell a full percentage point to 6.9% as the labor force more than reversed September’s contraction. Goods producing industries added 123,000 jobs, compared with 97,000 in September. Private service payrolls added 783,000, down from 795,000 in September. Retail trade added 104,000 jobs. Professional/business services expanded by 208,000, with more than half the gains in temporary services. Government payrolls declined, with half the loss occurring in federal government, as census hiring has been wrapped up. Average hourly earnings edged higher by 4 cents, with growth of 4.5% y/y. The household survey saw different results than the payroll survey, with employment gains that topped 2.2 million. The participation rate rose from 61.4% to 61.7%. The big increase in temp help suggests demand conditions are improving. As of October, employment was still down 10 million from February and there are 11 million Americans without jobs. About four million have left the labor force, Full employment is still not likely until 2023. 


China’s economic recovery is gaining steam as the global economy slowly recovers. Chinese exports rose 11.4% from a year earlier, the fastest pace in 19 months. Imports rose 4.7% year-over-year, slower than September’s 13.2% growth but still a second month of growth. The economy grew 4.9% in the third quarter and better trade performance could boost the nation’s economy. Growth could slow to 2% this year, the weakest in three decades but much stronger than other major economies. China has a better recovery from the pandemic and has a comparative advantage over some of its competitors. Exports may come under pressure in coming months as rising COVID-19 infections may slow growth in the U.S. and in Europe. 

Important Data Releases This Week

The October NFIB small business optimism Index report will be released on Tuesday, November 10 at 6:00 AM. The pandemic has been hard n small businesses. Some businesses in the service sector like leisure and hospitality and travel have been hard hit but are only recovering slowly. Others like construction and manufacturing are rebounding quicker. We look for the index, which stood at 104.0 in September to rise to 104.2 for October. 

The October CPI report will be released on Thursday, November 12 at 8:30 AM. The Federal Reserve’s recent adoption of inflation-level targeting and its new tolerance for higher inflation have yet to be tested. As both actual and core inflation remain below 2%. Inflation will gain a little velocity in coming months but remain restrained until a vaccine is widely available and the economy fully recovers from COVID-19. Inflation will remain at 1.3% year-over-year for October.

The October PPI report will be released on Friday, November 13 at 8:30 AM. Oil prices are restrained as COVID-19 cases multiply in the U.S. and Europe. The PPI rose 0.2% in September and will likely rise the same amount in October. 

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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.