Moneybeat - Jobs recovery

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Let’s jump right in with financial analyst and adviser David Bahnsen.

DAVID BAHNSEN, GUEST: Good morning. Good to be with you.

EICHER: And you! So a nice jobs report, it appears, for the month of October. Almost a million private-sector jobs, balanced out by loss of a quarter-million temporary government jobs—like census workers—so about 640,000 net new jobs. Unemployment rate, which had hit almost 15 percent at the height of COVID lockdowns—now below 7 percent—at 6.9. What does that tell you?

BAHNSEN: A pretty strong continuation of the trend that has been in place, which is an outperforming job market to expectations: 6.9 percent unemployment rate is something that I had economists a couple months ago predicting that we might see by 2022. So to get a 6-handle on the unemployment rate, just months after the initial debacle is really quite surprising and encouraging. 

And yet I don’t think anyone’s approaching it with a sort of finish-line approach. There’s a lot of work to be done. And I continue to reiterate that it’s going to be very difficult to get all the way to the finish line if there are policymakers still flirting with shutdowns. 

EICHER: So let’s talk a little bit about why that is because I saw the survey of economists before that report came out, and it really underestimated the jobs recovery for October. So they’re missing it and I wonder why. 

Do you think we just had a stronger underlying economy going in or can you credit Washington’s policy response or maybe a mixture of the two?

BAHNSEN: Or neither of the two. But it’s probably a mixture of the two and neither of the two—in this sense: there was a stronger economy and it’s really hard to measure the impact that it had in the stronger recovery. But it’s also somewhat counterintuitive to say it didn’t play a role.

However, I believe the biggest factor is the one not being discussed, which is that we had such an unbelievably artificial deterioration in the economy. So it becomes much easier to put the economy back together again, when the economy didn’t really ever fall apart. You just had a government mandate that no one could do anything. So what I mean by this is not that it was right or wrong. I have all kinds of opinions about the shutdown as does everyone. But my point is economically: it wasn’t like a typical recession or let alone a severe recession, like in 2008, where there were these underlying deteriorative fundamentals in the extension of credit, the willingness of banks to lend, the interest of employers to hire, the interest of people to go get jobs. You didn’t have all those normal supply-demand imbalances in production and consumption. You just simply had the government tell you, you can’t do anything. 

Now, of course there was a pandemic going on. And if there had been no lockdown, there still would have been a recession. The natural and organic decrease of economic activity through the initial period of COVID and that uncertainty would have created a significant contraction. But because we did such a draconian thing in March, April, into May, it was so violent in its impact, economically that it’s created a violent V-shape back and yet as the K-shape and the square-root shape and all these other silly things that we talk about, they’re all reasonably true. Now you’re seeing that the shape of the recovery, Nick, is different for one sector to another, for one economic group to another, just as the impact in the deterioration was very different sector by sector.

EICHER: Politics drowned out a lot of news last week, anything we missed?

BAHNSEN: The biggest economic story of the week was on Monday and the market had a big up week all week, but Monday was the real big day, and that was the ISM manufacturing number really outperforming expectations. So if there was an economic issue this week that I think was market moving, but more importantly, economically revealing—more than the labor data—it would be the continued move higher in manufacturing, in the recovery of some levels to pre COVID.

EICHER: Alright, so we had the AP declaring game over, Biden will prevail, with the Republicans likely to control the Senate, so divided government. How do you think economic policy changes with a new administration coming in?

BAHNSEN: Well, a new administration in the caveat of what you just said, which is that the Republicans have kept the Senate and the Democrats are reasonably defanged in the House as well—even though they’re going to keep a slight majority. Politics is always about momentum and margins. 

But it’s a really important theme. It’s not just when you have a majority, but when you have the ability to get things done behind some mandate. And I don’t mean a mandate you say you have in the media, I don’t mean spin, and that’s all part of the game too. But I mean, when you really have one. 

In this case, for the Democrats to have been expected, worst-case to add 15 seats in the House, and now they’re going to best-case lose 10 seats in the House, that’s a disaster. First time ever that a new party’s president’s coming in and not going to have control of the other side of government. 

I really believe that this is exactly what we could want for the economy, in that you’re going to get a stimulus bill now that’s going to be much smaller and more targeted and more thoughtful, because McConnell doesn’t have to go appease President Trump. He is going to be able to actually have these Republican senators do what they normally do, which is try to stand up to the president who wants to spend more money, but they couldn’t do that when it was their own party. 

They can do that with Biden, right? But more importantly, all of those significant events that were talked about as campaign components for Biden, of tax increases, green new deal, some of these more severe things. They’re not going to have the majority in the Senate to do it, and they’re not going to have votes in the House. 

And if anything, you’re going to really probably see a one year, I think this is going to last for half of the next congressional term, of moderate Democrats demanding that the democratic majority in the house move more to the center.

EICHER: David Bahnsen, financial analyst and adviser. Thank you.

BAHNSEN: Thanks so much, Nick.

(AP Photo/Frank Franklin II) In this Wednesday, Oct. 14, 2020 file photo, the American Flag hangs outside the New York Stock Exchange in New York. 

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