Today the Bureau of Labor Statistics updated its monthly Job Openings & Labor Turnover Survey (JOLTS). November’s data showed an uptick in layoffs and firings from a record low rate earlier in the fall. While that was some bad news, hiring has been accelerating. Private sector gross hiring was 4.5% of the labor force in August, and it’s now up to 4.7% in November. That’s a record pace of new hires for any period in the history of the series other than the immediate bounce-back from the initial COVID shock this spring. As for job openings, openings have stabilized a ways below their peak from the last cycle. So while there are lots of layoffs, the story is less negative than it might sound. Like what you see? Click here for a free trial to any of Bespoke’s premium membership options, including our nightly Closer note that regularly features economic analysis of this kind.

Another interesting dynamic in the JOLTS data is the industry-level results. Hires are strongest versus history in areas that you might expect given the impact of COVID: manufacturing, transportation/warehousing/utilities. Some surprising areas are very weak though: construction and information stand out. As for COVID impacts, you wouldn’t expect strong hires in accommodation and food services, but there they are. Job openings are the highest relative to history in manufacturing but are also extremely high in accommodation & food services as well as state and local education. Finally, we note that layoffs are basically consistent with COVID-driven weakness, plus the effects of Census hiring rolling off for the Federal government.

As we noted in today’s Morning Lineup and an earlier post, this morning’s release on small business optimism from the NFIB was a disappointment as the index missed expectations by a wide margin falling from 101.4 down to 95.9.  While the headline number experienced a sharp drop, what businesses report as their most important problem largely went unchanged from November.  As shown in the table and charts below, of the ten problems surveyed, half were unchanged MoM. Of those that were higher, “Other” saw the largest increase potentially as a result of rising COVID cases. Meanwhile, Cost/Availability of Insurance and Taxes were the others that saw an increase MoM.  On the other hand, Competition From Big Business was less frequently reported as an issue while Quality of Labor saw an even larger decline.  That three percentage point drop was the largest since April when that index fell nine points.

Where things currently stand means that government-related problems are back well above labor-related problems as the biggest issue reported by businesses.  On a combined basis, last month saw 30% of respondents report either cost or quality of labor as their biggest issue.  That was down to 27% in December while the percentage reporting either government requirements/red tape or taxes as their biggest issue rose from 34% in November to 35% in December.

As we have noted in general with this report, small business optimism has historically been impacted by changes in the political landscape. As shown below, during the past two Republican administrations—which are typically viewed as the more business-friendly party—fewer respondents to the NFIB survey reported either government red tape or taxes as their biggest issues while the opposite was true during the Obama years and early in the Clinton administration. With an incoming Democratic administration that is more likely to favor things like higher taxes and more regulation, this reading is starting to rise once again; erasing much of the move lower that occurred during the Trump presidency. Click here to view Bespoke’s premium membership options for our best research available.

Today’s release of the December Small Business Optimism Index from the NFIB saw a large drop as the index dropped from 101.4 to 95.9.  After a sharp drop in the wake of the COVID outbreak, the index bounced back nicely but now looks like it’s really rolling over.

Not only was this month’s headline index weak, but it caught economists completely off guard. While the index fell to 95.9, economists were expecting a drop to 100.2.  That 4.3 spread between the actual and expected reading was the biggest miss relative to expectations in more than five years (July 2015) and was the third weakest reading relative to expectations since the December 2012 report.

Given the big drop in the headline index and the fact that it was so weak relative to expectations, should we be concerned about a double-dip?  As an investor, we should always be worried about what could go wrong, but in the case of this report, you can probably wait for further confirmation from other data.  The reason for the skepticism is that you could argue that politics plays a role in this report.  To illustrate this, we would note that going back to 2010 (as far back as we have data) and right up through Election Day 2016, the NFIB only topped expectations 42% of the time.  Following Trump’s election in 2016, though, this index surged and has since topped expectations 63% of the time.  Since Election Day 2020, though, the headline index has now missed expectations three times.

From a longer-term perspective, dating back to 1974, the average reading of the NFIB Small Business Index during Republican administrations has been 100.1 while the average level under Democratic Presidents has been 96.2. Now, that would make sense if the economy was also in a recession more often in those periods, but over that same span, even though the percentages are low for both political parties (<20%), the economy has actually been in a recession a higher percentage of the time during Republican administrations than it has in Democratic administrations.

The lesson to take from all this is that even if it’s often hard to separate when it comes to business or investing (or a lot of other aspects of our lives for that matter), it’s usually best to leave politics outside. Click here to view Bespoke’s premium membership options for our best analysis available.

Over the past year, US equities—proxied by the S&P 500 (SPY)—have consistently outperformed global equities more broadly. As shown below, over the past year the S&P 500 (SPY) has risen just over 16%. That compares to 11.26% for the rest of the world as proxied by the Vanguard FTSE All-World ex US ETF (VEU).  Breaking that down a bit further by developed and emerging markets, US equities have outpaced both emerging and other developed markets.  While emerging markets (SPEM) are right on the heels of the US with just under a 14.78% gain, developed markets (SPDW) have lagged with just a 10.56% gain. So far in 2021, though, the rest of the world has been outperforming the US.  Whereas SPY has risen around 1% YTD, VEU is up almost 3 times that.  Emerging markets in particular have shown the greatest degree of strength currently having risen 3.87%. Meanwhile, SPDW has gained less (2.7%), though, it is still outperforming the US.

In the charts below, we show the ratio of SPY to these other ETFs.  A rising line would indicate that the US is outperforming these other measures of global equities while a downward trending line indicates underperformance of SPY.  As shown, the longer-term trend has pretty consistently been US outperformance over the past decade but that has faltered at the tail end of 2020 and into 2021.  In the case of emerging markets, the line has been on the decline throughout the second half of 2020 as the ratio has hit its lowest level in a year in the past week. The S&P 500’s underperformance relative to other developed markets (SPDW) has been more recent as that line peaked in early September but the trend remains the same over the past few months with SPY weaker than global equities more broadly. That is further exemplified by the recent downtrend of SPY versus the All World ex US ETF (VEU). Click here to view Bespoke’s premium membership options for our best research available.