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Last week was quiet on the economic update front, with the weekly initial jobless claims report serving as the only major data release. The number of initial unemployment claims fell by more than expected, but the Christmas holiday may have led to some volatility in the reporting. This week will be a busier one for updates, with a look at December’s business confidence and employment reports serving as potential highlights.
Last Week’s News
On Thursday, the initial jobless claims report for the week ending December 26 was released. The number of initial unemployment claims fell by more than expected, dropping from 806,000 claims to 787,000. The forecasts had called for an increase to 835,000 initial claims. Although this headline decline was welcome, it’s likely that the Christmas holiday during the week affected reporting, leading to a potential undercount of initial claims. We saw a similar unexpected decline in initial claims for the week that included Thanksgiving, but claims rose during the following two weeks. Continuing unemployment claims, which are reported with a one-week lag to initial claims, also declined by more than expected. They fell from 5.322 million to 5.219 million, against calls for an increase to 5.370 million. Despite the larger-than-anticipated decline for both initial and continuing claims, the overall level of unemployment claims remains high on a historical basis. This fact highlights the continued stress on the job market created by the pandemic.
What to Look Forward To
On Tuesday, the ISM Manufacturing Index for December is set to be released. This measure of manufacturer confidence is expected to fall from 57.5 in November to 56.5 in December. This is a diffusion index, where values above 50 indicate expansion, so, even with a modest decline, the result would be a sign of a continued recovery for the manufacturing sector. If estimates prove accurate, the index would sit at its third-highest level since the end of the initial lockdowns. This would highlight the continued resilience for manufacturer confidence, despite the worsening public health situation as we finished out last year. Historically, higher levels of confidence have supported faster business investment. So, if estimates hold, this index would send a positive signal for fourth-quarter business spending.
Wednesday will see the release of the FOMC meeting minutes from the Fed’s December meeting. As expected, no changes to the federal funds rate were made at this meeting, as Fed members largely do not expect to raise short-term rates for the foreseeable future. The meeting’s primary focus was on the change in the Fed’s language surrounding its asset purchasing program. The Fed reemphasized its commitment to the current pace of purchasing at least $120 billion in assets each month. This will not change until “substantial further progress” is made on the Fed’s employment and inflation goals. Economists will look to the minutes to get a better idea of what constitutes substantial further progress and for hints regarding the future path of the bond buying program. Ultimately, no major surprises are expected from the release of these minutes, but any additional insights into the central bank’s policies are worth monitoring.
On Thursday, the initial jobless claims report for the week ending January 2 will be released. Economists expect to see the pace of initial layoffs rise during the week, with forecasts calling for an increase from 787,000 initial claims to 803,000. This result would break a two-week streak of declining initial claims, but it should be noted that the year-end data likely faced holiday-related volatility. Despite the modest anticipated increase, this forecast would lower the rolling four-week average for initial claims, which would be a positive sign. Continuing unemployment claims, which are reported with a one-week lag to initial claims, are also expected to show improvement. The forecasts call for a decline from 5.219 million down to 5.150 million. Ultimately, this report is expected to show that initial and continuing unemployment claims remain elevated compared with historically normal levels. As such, it would highlight the stress on the labor market created by the pandemic.
Thursday will also see the release of the November international trade report. Economists expect to see the trade deficit widen during the month, from $63.1 billion in October to $64.5 billion in November. This result would bring the trade deficit to its second-widest point since 2008, trailing only the $64.9 billion deficit in August. The advance report on the trade of goods during the month showed the deficit widening by more than expected, from $80.4 billion in October to $84.8 billion in November, against calls for a move to $81.5 billion. This result brought the trade deficit for goods to its highest level on record, driven by a 2.6 percent rise in imports that more than offset a 0.8 percent increase in exports. With service-related trade well below pre-pandemic levels, the widening of the goods trade deficit is expected to cause the overall trade gap to widen.
The third major data release on Thursday will be the release of the ISM Services Index for December. This gauge of service sector confidence is expected to decline from 55.9 in November to 54.5 in December. This is another diffusion index, where values above 50 indicate expansion, so this result would signal continued recovery for service sector businesses. That said, if the estimate holds, it would mark three straight months with declining service sector confidence and bring the index to its lowest level since initial lockdowns ended. The index has rebounded notably since hitting a lockdown-induced low of 41.8 in April. With rising case counts and additional restrictions at the state and local levels, however, the strength of this recovery will likely be tested over the coming months. Given that the service sector accounts for the lion’s share of economic activity, monitoring it will be important, especially as we continue to get the pandemic’s third wave under control.
We’ll finish the week with Friday’s release of the December employment report. Economists expect to see 68,000 jobs added during the month, down from 245,000 in November. This result would mark the lowest number of jobs added in a month since April, representing a concerning slowdown in net hiring. The unemployment rate is expected to increase modestly, from 6.7 percent in November to 6.8 percent in December. This would be the first increase for the unemployment rate since it spiked to 14.7 percent in April. Although we have certainly made progress in getting folks back to work following the end of the initial lockdowns, the slowdown in the pace of hiring is concerning given the large number of unemployed Americans. The economy lost roughly 22.1 million jobs in March and April. Since May, we have only added approximately 12.3 million jobs, highlighting the very real work that needs to be done to get employment back to pre-pandemic levels. Ultimately, a full economic recovery will rely on a healthy jobs market, so this report will continue to be widely followed.
That’s it for this week—thanks for reading and stay safe!
