Wentz Weekly: Budget Reconciliation Speeds up Stimulus Package

Wentz Weekly Insights
Budget Reconciliation Speeds up Stimulus Package

The Department of Labor says 49,000 jobs were added to the economy in January, slightly below expectations, and December’s loss of 140,000 jobs was revised lower to a loss of 227,000. On a non-seasonal adjusted basis, the economy lost 2.77 million jobs in the month, which was relatively the same as what we saw a year ago when 2.79 million jobs were lost. This is due to seasonal factors with the winter months typically seeing industries shed jobs. The headline unemployment rate dropped to 6.3% from 6.7%, while the U-6 rate, a number more reflective of the labor market which includes those working part time that want full time work and those marginally attached to the labor force, fell to 11.1% from 11.7%. The number of persons temporary laid off decreased to 2.7 million, still 2.0 million higher than February last year, while the number of permanent job losers is 3.5 million and 2.2 million higher than February last year. There are 4.0 million individuals that have been jobless for at least 27 weeks, making up 39.5% of the unemployed. The industry with the most job losses is still leisure and hospitality, where employment is 23% lower compared to a year ago, highlighting the need for additional aid.
The House and Senate last week both advanced a budget resolution and passed a vote that will open up the reconciliation process for the next fiscal aid package. This will speed up the process for a bill and allow it to pass the House and Senate without support from Republicans. Earlier in the week, Republicans proposed a $620 billion stimulus package that would include targeted direct payments, enhanced unemployment benefits, funding for vaccine distribution and testing, and additional funds for businesses. President Biden met with Republican leaders on the proposal, however the proposal had no chance of being considered by Democrats and was seen more as what Republicans would support.
Treasury Secretary Janet Yellen said over the weekend the U.S. can return to full employment in 2022 if the government enacts a robust stimulus package that is large enough. Democrats also plan to introduce a bill that will provide $3,000 per child in direct payments, but as of now it is unclear if this will be able to pass the Senate with a simple majority. In the current $1.9 trillion Covid-19 relief proposal, details already include $1,400 in direct payments to individuals, which is expected to be more targeted, i.e. for those with income under $60,000. Other specifics include extending federal unemployment benefits of $400/week through September, funding for vaccine distribution and testing, assistance for schools, and funding for state and local governments. Direct spending just to combat Covid-19 is around $400 billion, while the remaining portion is to provide a boost to the economy. The desire to raise the minimum wage to $15/hour is unlikely to be included due to Senate rules, which Biden has acknowledged. We expect, with Democrats now utilizing budget reconciliation, a bill will be passed by mid-March, albeit lower than the original $1.9 trillion price tag, which is important as that is when much of the provisions in the December relief bill expire.
Earnings continue to pour in with a large majority of companies continuing to beat expectations. The beat rate is 81% on earnings and 79% on revenues, one of the largest beat rates since recordkeeping began. Amazon made the biggest headline last week, reporting revenues that eclipsed $100 billion for the first time ever. Revenue was $125.6 billion in its fourth quarter, rising 44% from a year prior, with operating income of $6.9 billion, over $2 billion above expectations. Its profit-generating cloud business, Amazon Web Services, generated revenues of $12.75 billion. Amazon said it expects net sales of $100 billion to $106 billion for the current quarter, $8 billion above expectations. The impressive report was not the biggest news though – Founder and CEO Jeff Bezos said he will step aside as CEO and begin the transition into the role of Executive Chair beginning in Q3. Andy Jassy, the current head of Amazon Web Services, will take over as the new CEO. Bezos said he would focus on new products and early initiatives, keeping him engaged at the company, but also wanted to focus more time on what he is passionate on, including the Day 1 Fund, the Bezos Earth Fund, Blue Origin, The Washington Post, and other interests.

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