Hiring in the American economy declined by 140,000 in December as firms felt the effects of the six-month delay by the political sector in providing fiscal aid to the public, and the subsequent pulling back in economic activity.
We expect that mass vaccine distribution this year will create the conditions for faster growth and employment.
This data, released by the Labor Department on Friday, will tend to affirm the Federal Reserve’s policy path that implies a policy rate of zero through 2023.
While the trend in hiring has slowed in recent months — December’s decline was the first since April — we expect that this is more of a temporary lull in hiring than the breakout of a new trend that results in soaring unemployment. Rather, we expect that mass vaccine distribution this year will create the conditions for faster growth and employment.
Still, the loss of momentum in the labor market is clear, and those who previously worked in retail, restaurants, entertainment, leisure and hospitality, as well as public sector workers in state and local governments, have paid the price.
Over the past few months, we have made the case that policymakers needed to pay close attention to the second derivative question, or the rate of change of the rate of change in hiring, which was clearly decelerating. Unfortunately, that number has turned negative and will most likely define the labor market during the first quarter.
Compared to pre-pandemic levels, the U.S. economy is short 9.83 million jobs, while the unemployment rate stands at 6.7%, well above the pre-pandemic low of 3.5% posted in November 2019. Of those jobs lost, roughly 3.4 million are permanent losses. In December, 23.7% of individuals employed telecommuted, which is up from 21.8% in November.
In December, 15.8 million people reported that they had been unable to work because their employer closed or lost business because of the pandemic—that is, they did not work at all or worked fewer hours at some point in the past four weeks.
The major policy implication of the jobs report is quite clear: The next round of fiscal aid needs to address the hole in state and local budgets blown open by the loss of revenues, which resulted in a loss of 1.31 million jobs last year. One of the major policy errors made during the Great Financial Crisis was not addressing those needs, which resulted in higher unemployment and a slower pace of recovery than was otherwise necessary.
The fiscal challenges faced by the states and municipalities are significant, illustrated by the loss of 45,000 jobs in December. In our estimation, we expect this to be one of the primary narratives in the debate on fiscal aid ahead of the benefits cliff approaching in March.
Duration of unemployment eases
Inside the data, the median duration of unemployment eased to 16.8 weeks from 18.9 weeks. The labor force participation rate stands at 61.5%, while the employment ratio is 57.4%. The employment-to-population ratio for prime-aged workers stands at 76.3%.
Hours worked eased to 34.7%, which is not supportive of an increase in consumption in the first quarter of the year, while average hourly earnings on a year-ago basis increased to 5.1%. It is important to note that with the pace of firings rising, this distorts the wage picture as low-wage employees continue to bear the brunt of layoffs as illustrated by the decline of 498,000 in leisure and hospitality.
Beyond the carnage in the leisure and hospitality industry and in the government sectors, the goods-producing sector added 93,000 jobs and construction hiring advanced by 51,000. Trade and transport added 191,000 and the financial sector added 12,000, while business services added 68,000. There were 31,000 job losses in the education and health care sector, while the number of workers in the information sector contracted by 1,000.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
