Job creation halted in December as the restrictions caused by the increasing cases of Covid-19 weighed on virus-sensitive industries, particularly bars and restaurants, which lost nearly half a million jobs.
The Labor Department reported Friday that the number of non-farm workers had fallen by 140,000. That was below the expectations of 50,000 economists surveyed by Dow Jones. It was the first monthly decline since April.
The unemployment rate was unchanged at 6.7% compared to an estimate of 6.8%. An alternative unemployment measure, which includes discouraged workers and those working part-time for economic reasons, decreased from 12% to 11.7%.
“Today’s report showed that the economy has not just hit the brakes, it has actually slipped into reverse,” said Daniel Zhao, chief economist at Glassdoor. “It is obvious how bad the winter wave of the pandemic was and economic data is now starting to reflect that.”
Markets shook off the disappointing report, likely in expectation that it would reinforce the call for more incentive from Congress and reflect a likely temporary job cut that would reverse as the spread of Covid vaccines accelerated. The shares opened trading on Friday with modest gains.
“In some ways, bad news is good news because it increases the likelihood of further stimulus,” said Michael Arone, chief investment strategist for US SPDR Business. “Investors this week convinced themselves that given the events in Georgia and the weak economic data, more help is on the way. We will get more fiscal aid and that will likely happen soon.”
Since a rebound that began in May, the economy had regained 12.3 million of the jobs lost. The greatest success was in the hospitality industry, where hotels, restaurants and bars suffered from the yoke of restrictions that restricted travel, eating and drinking. The December job record showed that the impact has intensified.
The industry slumped 498,000 jobs during the month, with most seeing restaurants and bars down 372,000. Overall, the number of people employed in the hospitality industry has declined 3.9 million since January, down 23.2%, according to the Bureau of Labor Statistics report.
During the summer, many of the restrictions on operating boundaries were lifted, but they have been reintroduced in recent months as coronavirus cases have increased and states and communities have eliminated or restricted indoor eating and drinking.
However, investors have looked through the current bad news and have continued to focus on the future.
One bright spot was that while layoffs increased by 277,000 to 3 million, permanent job losses actually fell by 348,000 to 3.4 million.
“If we can get the virus under control, the economy has shown that there is a lot of pent-up consumer demand. People want to get involved in a variety of activities,” said Patrick Leary, chief marketing strategist and senior trader at Incapital. “Although the introduction of the vaccine has been slow, it will eventually come into play. The market is rational about the outcome.”
By the time an extraordinary year came to an end – around 22 million workers were on leave in March and April – the labor market had recovered strongly, leaving around half of the displaced on the sidelines. That rebound stalled in December, though the news wasn’t all bad.
Outside the hospitality industry, other job losses were more subdued and several industries saw solid increases.
Private education also fell by 63,000, while government agencies shrank again with the loss of 45,000 jobs. The other service category decreased by 22,000.
Professional and business services grew 161,000, while retail added 121,000 and construction added 51,000 during the holiday shopping season.
Transportation and storage added by 47,000, and health care grew by 39,000. Wholesale also recorded an increase of 25,000.
In addition to these increases, upward corrections were also made in the previous months.
The October number rose from the previous estimate of 610,000 to 645,000, while November saw an increase from 91,000 to 336,000.
The blow to the job market is coming even though fourth quarter economic growth looks otherwise solid. The Atlanta Federal Reserve’s GDPNow tracker assumes that the US economy will accelerate 8.5% in the last three months of the year, although economists expect the first quarter of 2021 to be either a little or even a little shows no growth.