October 2, 2020
Hopes for a last-minute coronavirus stimulus package prior to the November presidential election pushed the S&P 500 1.50% higher for the week. This was the index’s first winning week over the last five during which markets have grappled with concerns that the economy is weakening amid gridlock on Capitol Hill in passing a supplemental stimulus bill. This week’s batch of economic reports on jobs and manufacturing showed continued progress but at a notable decelerating rate. However, investor optimism that an additional stimulus package will ultimately get done, supported by comments from House Speaker Nancy Pelosi and President Trump’s own coronavirus diagnosis, managed to help them look beyond the softening trend.
U.S. Jobs Market Crosses Key Level
The U.S. economy added 661,000 to the non-farm payrolls in September which helped push the unemployment rate down to 7.90%. The number itself was more than -25% below estimates of 894,000 and greater than -50% below the 1.37 million jobs added in August. September’s numbers were actually worse because they include temporary workers working on the census. Within the numbers there were some positives, however. Private payrolls were in the middle of the consensus range adding 877,000 jobs. At the sector level, customer facing businesses led the gains as states continued to loosen restrictions on restaurants, bars, and event venues. The leisure and hospitality sector added 318,000 jobs while retail added 142,000. It was state and local government jobs that were the biggest drag on payroll growth, reducing the total non-farm employment growth by -216,000. Although September’s payroll gains show a marked slowdown from the pace seen in July and August, the pace of recovery in general has been a lot stronger than was anticipated in mid-March. At its peak, businesses laid off 22 million employees and, through September, 12 million jobs — more than half of those lost — have been recovered. It is true that the current employment rate is nearly double that of February’s, but psychologically we are now dealing with unemployment levels that we’ve contended with in the past, having fallen well below peak 2008 levels and now approximating levels seen in 2012-2013. Ironically perhaps, these are the same unemployment levels the Obama/Biden ticket ran upon in their successful reelection bid.
U.S. Manufacturing Activity Expands for Fifth Consecutive Month
Factory activity remained strong in September, with the Institute for Supply Management Index hitting 55.4. That was the index’s fifth consecutive month of expansion. Readings above 50 indicate growth in the manufacturing sector while readings below indicate contraction. Despite falling from August’s reading of 56, the index still remains firmly in expansion territory. The drop in activity in September also comes on the heels of a 16-1/2 year high in new orders of 67.6 in August. At 60.2 in September, new orders still remain high and should keep factory floors busy through year-end. Overall, manufacturers have fared better relative to their service-oriented peers in the last several weeks as businesses continue to restock depleted inventories following Covid-related shutdowns in early 2020 and as retailers gear up for the holiday shopping season.
China Factory Activity Rises Ahead of Golden Week
Chinese manufacturers reported higher manufacturing activity in September on rising global demand for goods. The official manufacturing Purchasing Manager’s Index which focuses on large and state-owned businesses hit 51.5, up from 51.0 in August. A rise in new export orders and improving employment helped push the index higher for the month. Similar to the U.S., China is seeing a resurgence in demand as companies throughout the globe restock their depleted inventories after early 2020 coronavirus-induced shutdowns. Manufacturers are also set to get an additional boost from rising domestic demand given that China avoided the brunt of country-wide shutdowns and is now further along in its economic recovery from the pandemic. We’ll get a close look at consumer demand as the country celebrates Golden Week which runs from October 1 to October 7. The week-long holiday is filled with shopping and travel and is a closely watched gauge of the country’s economic health. Chinese consumers have continued to be more hesitant to spend during the pandemic, but demand does appear to be on the rise. If consumers come out in force, China will be poised for strong Q4 growth.
Optimism returned to markets this week as the tone towards a bi-partisan stimulus deal began to thaw. With the election around the corner, announcements from Disney, the airline industry, and Allstate that they would begin laying off workers may have been enough to cause lawmakers to consider their own employment prospects when the electorate finally gets its voice in November. For markets, stimulus is good and with data weakening, the shift in discourse was applauded by investors. Friday’s announcement that Trump had contracted COVID has added yet another layer of uncertainty in what has been anything but a conventional race. Heading into the final stretch, Trump will be sidelined and unable to campaign in person for at least two weeks. The next scheduled debate between the candidates on October 15th is now thought to be questionable, which for anyone having watched either candidates’ performance on Tuesday probably comes with a fair degree of relief for being spared the embarrassment. It’s a weird race that has just been made weirder, but the overall financial media’s perspective is that Trump having contracted COVID favors Biden, whose policies are not seen as investor friendly on balance (greater public spending but with higher taxes). Whether either of those perspectives ultimately prove true or not, we’ll have to wait and see, but the market now has something new to worry about as we kick off the final quarter of 2020.
The Week Ahead
Covid-19 has made it an increasingly challenging environment for service-oriented businesses. Despite strict operating restrictions, the sector has managed to expand for three consecutive months. We’ll see if the momentum can continue as the U.S. and China release figures on the services sector.
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Countdown to Election Day
Election Day 2020 is just 32 days away, and officials are taking steps to prepare for a myriad of uncertainties surrounding voting this fall. The Constitution gives states the leading role in administering elections, and they sure have their work cut out for them this year. It’s shaping up to be a record breaker in terms of total voter turnout and the number of voters casting mail-in ballots. Add to that the changes in voting rules at the state level, the pandemic and social distancing requirements at polling locations, and an anticipated shortage of poll workers, and it’s going to require voters to take some extra time to ensure they are complying with voting regulations and able to participate in the electoral process.
In a typical year, voting in the general election can be confusing, and in 2020, in response to COVID-19, things are looking even more complicated. Some states are allowing concerns about COVID to be an excuse to vote by mail, while other states are not. Each state determines its own voting rules, with election officials grappling with whether voters are automatically mailed ballots, automatically mailed applications for mail-in ballots, or if voters must request to receive an application to vote by mail (if they meet their state’s eligibility requirements). The rules for returning ballots also vary by state along with the deadlines for registering to vote.
Before the pandemic, five states already held all-mail elections, meaning every active registered voter automatically received a ballot in the mail without having to request one and could avoid voting in person. Due to the pandemic, several more states have expanded opportunities to vote by mail and many have eliminated the requirement that voters have an “excuse” to cast a mail-in ballot, such as being over the age of 65 or being out of the country.
Early voting is similarly disjointed with each state having their own rules and timelines. All states allow some form of early voting which may include casting votes in person at polling places, voting by mail, or both. Some states allow the “processing” of mail-in ballots, including opening them, verifying signatures, and sorting ballots into the correct piles for tabulation, to begin as many as three weeks before Election Day. Some states only allow it to begin on Election Day itself, which can lead to a lengthy count, particularly for states who may be overwhelmed by this year’s large number of mail-in ballots.
In case you are wondering about the rules in Texas, to apply for an absentee ballot in the Lone Star state, you must be 65 years or older, be sick or disabled, be out of the county on election day and during the period for early voting by personal appearance, or be confined in jail, but otherwise eligible. Texas does not recognize concerns about COVID as an excuse to allow voting by mail. Texas Governor Abbot issued an order yesterday requiring the closing of all but one drop-off location per county for voters casting absentee ballots. It was quickly met with a lawsuit from voter rights organizations, so voters in Texas should be aware of the possibility for additional changes.
Despite all these twists and turns, voter turnout in 2020 could reach the highest levels in decades—if not the highest in the past century. In 1908, turnout reached 65.4% of the voting age population. Since 1972 when the voting age dropped to 18 from 21, the percentage of the voting age population that turned out to vote peaked 58.23% in 2008 when Obama defeated McCain, and hit a low of 49.00% in 1996 when Clinton won a second term. In the 2016 general election, voter turnout was 55.67% of the voting age population with 136 million votes cast. Officials forecast a voter turnout as high as 66% this fall.
Voters heading to the polls may again experience long lines (similar to the primaries) or a reduction in polling locations due to staffing issues. A large percentage of polls are typically staffed by elderly workers, but they’re at high risk of COVID-19, which has led to poll worker shortages this year. Cities and states are heavily recruiting to fill those much needed spots and to avoid cutting the number of polling sites.
If you plan to vote by mail, there are some things to know to ensure your vote is counted. About 1% of absentee ballots in the 2016 election were rejected, according to a report by the U.S. Election Assistance Commission. The most common reasons a ballot was rejected include: “the signature on the ballot not matching the signature on the state’s records,” “ballot not received on time/missed deadline,” and “no voter signature.” Other reasons for rejection included “voter voted in person,” “no witness signature” and “problem with return materials.” The federal government’s voting website at https://www.usa.gov/election-day allows voters to check their registration, determine their state’s voting requirements, check polling locations, and more.