December 2, 2020

The US labor market is not collapsing despite recent layoffs, an economist says

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A housekeeping worker wears a mask as she cleans a room, Wednesday, March 4, 2020, at an Econo Lodge motel in Kent, Wash.

  • The US has announced layoffs in several sectors this week, but one economist thinks the outlook is less grim. 
  • American Airlines and United Airlines are collectively putting 32,000 workers on furlough while Disney is cutting 28,000 jobs. 
  • Michael Darda of MKM Partners told CNBC’s “Trading Nation” Thursday: “Keep in mind those numbers sound terrible, but they’re not enormous in the context of the size of the total US labor market.
  • Darda said the September Jobs Report due later Friday will be better than expected and still reflect an economic recovery. 
  • Darda’s economic optimism is also reflected in the stock market. His base case for the S&P 500 is 3,600 by year end. 
  • Visit Business Insider’s homepage for more stories.

Layoffs have been announced in several US industries this week, but the labor market is still healthy, MKM Partners’ economist Michael Darda told CNBC’s “Trading Nation” Thursday. 

 Disney, United Airlines and American Airlines are only some of the companies to announce layoffs and furloughs this week.

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Airlines have been hit harder than other industries by the pandemic. American Airlines is set to furlough 19,000 employees, and United is expecting about 13,000 workers, after Congress failed to reach a deal on a fiscal  COVID-stimulus plan Thursday. 

Meanwhile Disney said earlier this week it will lay off 28,000 workers from its parks, businesses and products business. 

Darda, who is chief economist and market strategist at MKM Partners, said: “Keep in mind those numbers sound terrible, but they’re not enormous in the context of the size of the total US labor market.”

Darda expects the September jobs report due later Friday to be better than expected, and give Wall Street confidence that an economic recovery for the world’s largest economy is still intact. 

“If we look at [weekly] jobless claims, a high-frequency indicator, that’s contemporaneous, right? We have claims data reaching all the way into September,” he said. “First-time claims are running about 13% below the August average.”

New US jobless claims for the week that ended Saturday totaled 837,000, the Labor Department said Thursday. The reading landed below the consensus economist estimate of 850,000 and marked a decrease from the prior week. 

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Friday’s monthly employment report will be key as it is the last one before the US presidential election scheduled for November 3. 

According to Dow Jones, the report is expected to show 800,000 nonfarm payrolls were added in September compared to 1.37 million in August. A reading of 800,000 would be the smallest increase in five months.

The report is expected to show improvement in the labour market since the pandemic slashed millions of jobs in March and April. The leisure and hospitality sectors are expected to show recovery as some parts of the economy have re-opened, while the construction sector is likely to also show some gains due to an increase in home building. 

Darda thinks stocks will grind higher based on positive prospects for the US economy. 

His base case for the S&P 500 is 3,600 by year end, which if realized, would be an all-time high for the index.  That is almost 7% above Thursday’s close at 3380.81. 

“We should have a rising floor under the fundamentals that underpin the stock market,” Darda said. “I think we grind higher in Q4,” he concluded.