Implications: After seven consecutive months of job gains, the impact of renewed COVID restrictions, which ramped up again in November, are showing up in economic data. Nonfarm payrolls fell 140,000 in December, lagging the consensus expected gain of 50,000, the first payroll decline since the massive 20.8 million drop in April. Meanwhile, civilian employment, an alternative measure of jobs that includes small-business start-ups, increased a bare 21,000 in December, the smallest increase since April's complete shutdown. The underlying data was not much of a surprise. Leisure and hospitality jobs contracted by 498,000 in December, particularly among restaurants & bars, which lost 372,000. (The two other sectors that held down payroll growth in December were government and education.) In other words, the data suggest a combination of increased government restrictions on activity related to COVID-19 as well as the effect of colder weather on outdoor dining were the main culprits behind fewer jobs. However, while the shutdowns garner big headlines, and the impact is predictable, a good portion of industries have learned how to continue operating. The payroll diffusion index, which reports the percentage of industries gaining jobs minus those losing jobs came in at 61.0% in December (well above the 50% mark where gainers and losers are equal). Job-gaining sectors included manufacturing, construction, retail trade, wholesale trade, transportation & warehousing, financial activities, professional & business services, and health care. In other words, this doesn't look anything like a "double-dip" recession. The other weak news in today's report was that average weekly hours ticked down to 34.7 from 34.8. However, the loss of jobs among relatively lower-pay workers in the leisure & hospitality sector likely helped push average hourly wages (for those still at work) up 0.8% for the month and 5.1% higher than a year ago. Combining the figures on hours and wages, total earnings rose 0.4% in December and are only down 0.4% from a year ago. For comparison, back in April, total earnings were down 8.9% versus April 2019. Another way to think about it is that total earnings have increased in each of the past eight months and have now recovered 88% of the losses that occurred in March and April. Note as well that the unemployment rate remained at 6.7% in December as both civilian employment and the labor force both ticked up slightly versus November. The road to a full recovery remains a long one, but today's soft report is not as reason to worry about 2021. Look for a rebound to job growth in the first quarter and for robust gains in 2021.
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