Two and four. Instead of sugarplums dancing in our heads, those two numbers seems to be pirouetting about. Two Senate races and four Congressmen/women. The legislative branch of the government has always been the most infuriating, at least for us. Whether it’s gridlock, obstinacy, ineffectiveness, or incompetence, the extreme partisanship in our hyper-sensitive social media fueled times have pushed positions to extremes, making compromise and bipartisanship difficult, if not a rarity. Now it’s likely supposed to be this way as our “Founding Fathers” weren’t strangers to inflamed passions and political gun fights. We’ve seen Lin-Manuel Miranda’s documentary Hamilton, they simply did it with more style. Who knew rap battles were de rigueur in those days?
As we look into 2021, a different battle emerges. On the Senate side, the runoff elections in Georgia for the two Senate seats will determine whether Biden has his blue wave. Betting markets currently give the lead to the two Republican candidates (Senators Kelly Loeffler and David Perdue) retaining their seats, which if you play the odds seems about right given Georgia historically leans . . . right. If Democrats, however, are able to carry both elections, the Senate would become a 50-50 tie, with Vice President-elect Kamala Harris able to cast the tie- breaking vote. Not a Blue Wave tsunami, but certainly enough of a wave to deliver some of Biden’s more ambitious agenda items.
What about the House of Representatives? Well that’s the four. The numbers there currently measure 222 to 213, with a majority being 218 (we’re assuming Republicans win the two disputed seats (IA and NY) and those leaving for the Biden administration are filled by Democrats). Four . . . with that thin Maginot Line, good luck to House Speaker Nancy Pelosi for containing the more progressive elements of her party. A slim majority means even if the Democrats carry the Senate, a fringe element within the Democratic party can control the House. On any legislative issue, but particularly those politically charged (i.e.,healthcare, tax reform, stimulus bills, immigration), 5 members of the progressive elements within the Democratic party can band together and stymie progress. It’s simple math, the greater the majority, the greater the ability for the House leadership to ignore fringe elements and bury politically charged proposals. Not so in January when the new session begins. We expect proposals/bills coming out of the House to be even more left leaning in the 117th Congress, which means if the Republicans do carry Georgia, even greater power accrues to Senate Majority Leader Mitch McConnell as he can play the counterweight to the “liberals run amok” theme.
Why is that important? Well if Republicans carry the Senate, much of President-elect Biden’s plans will already be difficult to pass. Large stimulus, infrastructure spending, tax reform, climate change, etc. Republican Senators will undoubtedly block reforms and stall the agenda as much as possible. Yet, if progressives in the lower House force the confrontation and tacks further left, it gives the Senators even greater political cover to do so. Political cover turns into a political platform for 2022. As important as the elections this year was, 2022 could be equally as crucial. After losing close to a dozen seats in the House, and racking-up numerous state losses, Democrats are in a precarious position with the voting public. A louder cry for even more progressive/liberal policies could slide the party into the minority, and with the slim majority, voters have handed small cadres of progressives a bullhorn in the House. Put the earplugs on because the rap battles are about to get louder.
Jobs, Jobs, Jobs
So that’s politics, but what about the real world? As we begin to settle into our winter holiday festivities, properly and safely socially distanced of course, we do so thinking about how the pandemic has impacted US employment is so many different ways. Some families are experiencing the holidays with a mixture of fear and uncertainty as the recovery slows and unemployment begins climbing again. While we wrote about household savings last week, we wanted to take a look at employment.
Savings, recovery, and eventual growth aren’t possible unless unemployment improves. So what’s the current situation? Well as we roll-out the vaccine, the unemployment rate sits at 6.7%, down from an April high of 14.7%. If we include active seekers and underemployed, that figure increases to 12%, still an almost >60% improvement from the 22.8% back in April.
Nonetheless, the improvement has slowed as COVID cases intensify and we reenter local lockdowns. In November, the Midwest proved problematic, but since then cases and hospitalizations in the West Coast (and to a lesser extent the East Coast) have begun to rise just as the Midwest have fallen. Consequently, restaurants, gyms and other non-essential industries in some states have shuttered, but the severity of restrictions varies. California is the main culprit here as net hospitalizations there account for over half of US hospitalizations.
Overall though, the impact won’t be as severe as March because politicians are attempting to balance the economic harm (especially during the crucial holiday selling season) with the health concerns and increasing roll-out of the vaccines.
As we noted in our last newsletter, the unemployment rate continues to vary depending on the education levels. Unsurprisingly those who have borne the brunt of this economic fallout are those at the lower education levels. October’s numbers carried forth into the recently released November figures, and we see the same pattern.
The figures above also pair well with temporary job losers. Those figures continue to decline. As the economy recovered during the summer and into fall, temporary workers were hired back when the service industry reopened. Permanent job losses also appear to be flatlining after months of increases.
We anticipate December to be roughly in-line with the prior few months, but slightly weaker. Congress is in the process of negotiating another stimulus bill, and if that comes to fruition, we should see a noticeable uptick as another airline industry backstop allows capacity to be returned (i.e., jobs) and PPP allows the service sector to add- back employment and slow attrition. As initial claims have started trending higher in the past few weeks, the additional fiscal stimulus should help to flatten out the recent weakness turn around the upward trajectory.
Productivity may not be the highest, but at least the economy will be bridged until the Spring, which is when wider vaccine availability allows health restrictions to fully lift and the economy to recover even more robustly. We’ll have more on the stimulus bill once the details are released next week. For now, we’re just hoping Congress can agree to something palatable so people won’t go hungry during this holiday season.
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