After last week’s volatile bout of stock trading, investors this week are set to focus on new labor market data, as well as a dwindling batch of quarterly earnings results.
The U.S. Labor Department’s February jobs report set for release on Friday will be one of the main reports of the week, offering a fresh look at the state of the labor market recovery after back-to-back disappointments in each of the January and December reports.
Consensus economists are expecting to see that non-farm payrolls rose by 150,000 in February, accelerating from the tepid gain of 49,000 a month earlier. The unemployment rate likely ticked up to 6.4% from 6.3%, though any increase could be in part the result of rising labor force participation as unemployed Americans resume their job searches in anticipation of more business reopenings.
In December and January, service-related jobs bore the brunt of payroll declines, as a resurgence in new COVID-19 cases around the holidays led to new social distancing restrictions that weighed on jobs in high-contact fields. Leisure and hospitality payrolls dropped by 61,000 in January, following a plunge of more than half a million in December.
However, COVID-19 new cases and hospitalizations have fallen precipitously after a spike at the beginning of the year, allowing some restrictions to ease. The February jobs report will likely reflect a pick-up in employment as a result of these improving virus-related trends.
“We expect leisure and hospitality employment to increase based on restaurant activity data and also look for modest rebounds in other industries, consistent with high-frequency data on jobless claims and alternate employment indicators,” Nomura economist Lewis Alexander wrote in a note Friday.
“However, the report will likely still show some pockets of weakness. Cold temperatures during the survey week, ahead of the disruptions that affected a large swathe of the country in mid-February, likely weighed on construction employment,” he added. “Moreover, seasonal distortions that boosted private and state and local educational employment in January will likely result in employment declines for those industries in February.”
“Altogether, we expect the February employment report to show increasing labor market strength, but believe a swifter recovery is more likely to take hold later this year as vaccinations continue,” Alexander said.
Indeed, the U.S. economy as a whole remains about 9.9 million payrolls short of its pre-pandemic levels from February 2020, and the unemployment rate remains well above February 2020’s 50-year low of 3.5%.
Other economists have suggested the actual state of the labor market is even worse than the headline data suggests.
“If you count in addition to the almost 10 million who are registered as unemployed, if you add in the 4 million who have dropped out of the labor force — for health reasons, because they have child care responsibilities — and 2 million people who have reduced hours or pay, we’re looking at an unemployment rate that really is close to 10%,” Treasury Secretary Janet Yellen told New York Times reporter Andrew Ross Sorkin last week.
The still-weak labor market has served as particularly strong impetus for lawmakers to remain highly supportive in their policy decisions. Federal Reserve Chair Jerome Powell reiterated in his semiannual monetary policy testimony before Congress last week that the economy is “a long way from our employment and inflation goals,” and that it would likely take “some time for substantial further progress to be achieved.” Those remarks suggested the Federal Reserve would maintain its highly accommodative monetary policy stance, with interest rates near zero and asset purchases at a massive rate of $120 billion per month.
And extending direct support for those still unemployed due to the pandemic remains a key near-term concern for congressional lawmakers. Federal unemployment benefits authorized under the latest $900 billion virus relief package in December are poised to expire in mid-March, which could leave millions of Americans without aid to weather the next several months before vaccines are more widely distributed.
Quarterly results from one of the darlings of the stay-at-home trade are on deck this week.
Zoom Video Communications (ZM) is slated to report fiscal fourth-quarter results after market close on Monday. With many workers set to begin returning to their offices later this year, the specter of slowing growth remains a key concern.
Zoom, once a little-known tech service before the pandemic, has grown revenue in excess of 300% in each of the last two quarters, as the meeting software became the go-to platform for workplaces, friends and families to stay connected and schools to conduct remote learning. Customers with more than 10 employees jumped by 485% and 458%, respectively, in its October and July quarters.
The video conferencing company is expected to extend this streak of strong growth for the fourth quarter, with sales anticipated to rise 331% to $811.04 million in the three months ended in January, according to Bloomberg consensus data. However, this would still mark a deceleration from the previous quarter’s 367% top-line growth, and Zoom’s guidance at the time for the fourth-quarter slowdown had led to a swift sell-off in December.
“Given the uncertainty around the timing of reopening and impact to churn rates … we anticipate relatively conservative guidance that implies FY22 ending annualized run rate growth (best proxy for new business) likely in line with current Street expectations of +12% year-over-year,” Credit Suisse analyst Brad Zelnick wrote in a note on Friday. “We believe this slowdown in forward-looking metrics is inevitable given Zoom’s current scale.”
At the same time, rapid expansion in Zoom’s newer Zoom Phone cloud-based phone platform may help buoy the business even as adoption of the flagship meeting software moderates. Zoom Phone reached 1 million seats in January, or within two years of launch, and expanded its global coverage of the service to 44 countries.
“While Zoom Phone will help offset a slowdown in Zoom Meetings growth, we believe current expectations already embed meaningful adoption of Zoom Phone,” Zelnick added.
Zelnick rated Zoom as Underperform based on valuation, following the stock’s run-up of nearly 400% in 2020. However, the stock traded roughly flat for the month of February, as investors rotated away from the high-growth tech stocks that had so strongly outperformed during the pandemic last year.
Monday: Workhorse Group (WKHS) before market open; Zoom Video Communications (ZM), Novavax (NVAX), Clover Health Investments (CLOV), Nio (NIO) after market close
Tuesday: Kohl’s (KSS), Target (TGT) before market open; Nordstrom (JWN), Box Inc. (BOX) after market close
Wednesday: Dollar Tree (DLTR) before market open; Okta (OKTA), Snowflake (SNOW), Vroom Inc (VRM), Splunk (SPLK) after market close
Thursday: Kroger (KR) before market open; Opendoor Technologies (OPEN), Broadcom (AVGO), SmileDirectClub (SDC), Costco (COST), The Gap (GPS) after market close
Monday: Markit US Manufacturing PMI, February final (58.5 expected, 58.5 in prior print); Construction spending month-over-month, January, (0.8% expected, 1.0% in December); ISM Manufacturing index, February (58.6 expected, 58.7 in January)
Tuesday: Ward Total Vehicle Sales, February (16.40 million expected, 16.63 million in January)
Wednesday: MBA Mortgage Applications, week ended February 26 (-11.4% during prior week); ADP Employment Change, February (170,000 expected, 174,000 in January); Markit US Composite PMI, February final (58.8 in prior print); Markit US Services PMI, February final (58.9 expected, 58.9 in prior print); ISM Services Index, February (58.6 expected, 58.7 in January)
Thursday: Challenger Job Cuts, February (17.4% in January); Initial jobless claims, week ended February 27 (793,000 expected, 730,000 during prior week); Continuing claims, week ended February 20 (4.419 million during prior week); Factory orders, January (1.3% expected, 1.1% in December)
Friday: Change in non-farm payrolls, February (150,000 expected, 49,000 in January); Unemployment rate, February (6.4% expected, 6.3% in January); Average hourly earnings, month-over-month, (0.2% expected, 0.2% in January); Labor force participation rate, February (61.4% in January); Trade Balance, January (-$67.5 billion expected, -$66.6 billion in December); Consumer credit, January ($12.000 billion expected, $9.734 billion in December)
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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