Employment growth slowed in November. However, business surveys show demand is strong, with employers complaining about a shortage of qualified workers. With rising demand and strong new orders, job numbers should catch up with the rest of the economy.
Despite the economy’s strength, the Federal Reserve has continued to purchase $100 billion in securities in each of the past four months. The upward momentum in stocks is likely to continue until the Fed signals a change in its massive injection of money. I doubt any such change is imminent.
The Week That Was
Economic numbers show business continues to grow at a rapid pace even though today’s employment report shows 344,000 jobs were created in November. That compares to an average of close to a million a month in the previous three months. The employment weakness is also reflected in the ISM business surveys.
While the job market is slowing, business is booming. The slowdown in the creation of jobs is not due to a lack of demand. Business surveys for November indicate companies are complaining of a shortage in qualified workers to fill positions. Reducing the amount of government subsidies that make not working more attractive would improve the nation’s employment numbers.
What to Expect Next Week
The only significant economic news on the way next week will be the regular monthly inflation reports.
Although consumer prices rose only moderately in October, the sharp increases in prices for doing business should soon lead to higher prices for consumers. By early next year, year-over-year inflation numbers are likely to move above 2 percent.
Rising Numbers of COVID Cases, Deaths
Encouraging test results for Pfizer and Moderna vaccines appear imminent. With the daily death rate up to 3,000 a day, FDA approval of vaccines with successful test results are likely before the end of the year. In addition, successful tests from some of the 11 other vaccine candidates should be available by early next year.
The apparently successful development of vaccines is the light at the end of the tunnel for getting rid of the virus and getting back to normality.
Market Outlook
Stocks were mixed this past week. The Nasdaq and S&P500 reached new all-time highs, but the Dow and small caps fell by 1 percent to 2 percent.
Economic news for November was mostly positive. Early reports for the month point to a monthly gain of about 1 percent in overall activity. This would put the economy (GDP) close to its monthly high of nine months ago. Given the momentum and strength in new orders, the economy should reach a new all-time high in December or January.
There are two cautionary signs regarding the outlook for stocks. First, the S&P500 is currently overvalued by 10 percent. Stocks are no longer cheap. Second, IBD’s bull/bear ratio (a contrary indicator) shows the most bulls and fewest bears in almost three years.
Although the risks to stocks have increased, there are reasons to believe the upward momentum will continue.