January 08, 2021 | 09:14
U.S. Nonfarm Payrolls (Dec. 2020) — No, No, No
Bottom Line: The first monthly decline in nonfarm payrolls since the spring shutdowns confirms the economy stumbled at the turn of the year due to rising restrictions to suppress a spiraling second wave of the virus. However, the narrow concentration of losses in sectors facing restrictions, namely leisure and hospitality, suggest the recovery will continue to move forward in the absence of broader Covid-related anxiety among consumers. The report will grease the wheels for more stimulus from a bluer Congress, and possibly from the Fed should the recovery stumble more broadly.
Nonfarm payrolls fell 140,000 in December, the first setback since April. However, upward revisions of 135,000 to the prior two months' gains offset most of the downside miss to our expected call of a flat print. More importantly, the decline was due to a near half million plunge in leisure and hospitality, as renewed restrictions on indoor dining and social activity spurred another round of layoffs at restaurants, bars, hotels and in-person recreation. Private schools also cut jobs, as did state and local governments facing budget constraints (that might be remedied if the new Congress provides more financial aid). Private payrolls fell 95,000, albeit after upwardly-revised strong gains of 417,000 in November and 925,000 in October. Manufacturing, construction, and professional/business services all ramped up hiring in December, as did retail (121,000), likely reflecting a not-bad holiday shopping season.
December's setback puts nonfarm payrolls down 9.8 million since February, or -6.5%, capping one of the worst years on record for American workers.
The unemployment rate stayed at 6.7%, as modest increases in household-survey jobs and the labour force offset each other. The participation rate held at 61.5%, still down 1.8 ppts since February, indicating a large pool of potential workers, though many (notably retirees) won't be coming back to the workforce. The "all in" jobless rate slipped to 11.7% due to a decline in involuntary part-time workers, marking some progress in labour markets.
Aggregate weekly work hours fell 0.4% in December, reversing the prior month's gain, but are up a massive 8.2% annualized in Q4, suggesting some upside risk to our call for 4.9% GDP growth, depending on what happens to productivity. But the December slide suggests some downside potential to our 1.0% call for Q1.
Average hourly earnings bounced 0.8% higher, kicking the yearly rate up to 5.1% from 4.4%, but this is due to the concentration of job losses in lower-paying industries.
Our payrolls report scorecard gives the December release a 42.2 grade, a big pullback from the prior 72.1 and below the neutral 50 mark. This is a major setback for the labour market and the economy, but the narrow concentration of losses due to restrictions keeps a positive light on the eventual post-vaccine recovery.