KEY DATA: Payrolls: -140,000; Revisions: +135,000; Retail: +121,000; Leisure and Hospitality: -498,000; State and Local Government: -51,000; Unemployment Rate: 6.7% (Unchanged); Wages: +0.9%
IN A NUTSHELL: “When you shut things down, jobs disappear, it’s that simple.”
WHAT IT MEANS: The out-of-control virus continues to play havoc with the labor markets. Payrolls declined in December, but most of that was due to shutdowns in the leisure and hospitality sector, which lost nearly half a million workers. Three-quarters of that came from the closing of restaurants. Educational facilities were also down sharply. Budgetary issues led to significant cuts in state and local governments. But there were also a number of outsized increases in other industries. Retail soared, led by warehouse clubs and supercenters. There was a surge in temporary workers and delivery services, which was hardly a surprise. Improving sales led vehicle dealers to add a lot more workers. While the large increase in construction was somewhat greater than expected, the jump in manufacturing payrolls was not. Those two sectors combined added nearly 90,000 workers, much more than projected. October and November payrolls were revised upward enormously.
As for the unemployment data, they were remarkably tame. The rate remained at 6.7% as both the labor force and number of people unemployed increased minimally. The number of people unemployed remained near eleven million, but the number of workers who were unemployed for between 5 and 26 weeks dropped sharply. That was offset by new workers coming on to the rolls. The one concern was that long-term unemployment continued to increase, though only moderately. Nearly four million people have been unemployed for twenty-seven weeks or longer. That could weigh heavily on the recovery.
Finally, wages skyrocketed. Actually, they didn’t. As I have pointed out before, the hourly wage number is a weighted average and in December, most of the workers losing jobs were in low-paying positions. Thus, their weight dropped sharply, increasing the average. When they come back after the holiday shutdowns, that should reverse.
IMPLICATIONS: On the surface, this looks like a really disturbing report. But the details tell a more complex story. Most of the decline came from holiday shutdowns of restaurants, hotels and entertainment facilities that are already being reversed. But the retail boom may have been temporary as people rushed to superstores rather than malls as the virus surged. One stop shopping seemed to be in big-time. That may change going forward. The construction boom seems to be slowing and the large manufacturing jobs increase was weird. Many colleges were shut down after Thanksgiving, but that decline will turnaround soon as they reopen for the spring semester. And as public schools slowly get back to full-time basis, education payrolls should rebound. Finally, while health care employment was up solidly, as the vaccination process ramps up, hiring should follow. So, where is the labor market going? It doesn’t look like we will be getting many, if any, additional negative numbers going forward. And once the latest virus surge eases, sometime in the future, and the restrictions start being lifted, we could see some months of very strong job gains. But that could be a head fake. Underlying economic growth is slowing and there is little reason to expect that once the economy moves back toward trend growth during the first half of the year, future strong job gains can be sustained. As always happens, the data will be revised in January, so it may take us to the fall before we get a really good picture of what the longer-run trend in payrolls looks like. The flatlined but excessively high unemployment claims numbers point to continued pressure on the unemployment rate and the growing number of long-term unemployment is worrisome. We could be stuck with an unemployment rate above six percent for an extended period.