The US private sector cut jobs unexpectedly in December, as employment trends weakened dramatically across the country before Congress passed its latest virus relief package.
Private payrolls fell by 123,000 during the last month of 2020, according to the ADP report, which marks the first monthly decline since April. This came after a revised increase of 304,000 jobs in November. Consensus economists had expected to see 75,000 jobs coming back in December, according to Bloomberg data.
The service sector has been hit hard again after a brief postponement in recent months, as stricter blocking measures have taken effect across the country since mid-November. The leisure and hospitality industries lost 58,000 payrolls in December, closely followed by the commerce and transportation industries, with a decline of 50,000. Manufacturing industries also lost 21,000 private payrolls in December, undoing part of the recent recovery in the goods production sector. Sectors that saw net payroll gains in December – including business services and education and health services – recorded only modest increases.
“America’s big job machine hit a wall of growing cases of coronavirus and state blockages that endanger the entire economic recovery from the recession,” said Chris Rupkey, chief economist at MUFG Union Bank, in an email at Wednesday morning. “The heart of any recession is job losses, and at the moment, the decline in jobs at the end of the year indicates that the dark days of the labor market last spring have returned. A new government is returning to Washington and lawmakers will be busy while economic weakness appears to have returned.
The latest ADP payroll report precedes the Department of Labor’s monthly payroll report by two days, but has been an unreliable indicator of the results of the government report during the course of the pandemic due to differences in research methodology . With the ADP report, only individuals with an active payroll are counted as employees, while the Department of Labor counts any individual who received a salary during the research week for the report.
In October, for example, the ADP reported that the economy gained only 403,900 private payrolls, while the Department of Labor reported an increase of 877,000. The reduction in ADP was slightly less dramatic in November, however.
But one theme has been consistent across virtually all recent employment data: hiring has weakened noticeably in the last month of the year and layoffs have increased again. New weekly unemployment insurance claims jumped to a three-month high during December and remained high at more than 800,000 a week for most of the month, with the rise in COVID-19 cases and the colder climate dragging jobs.
As of Wednesday morning, the median economist still expected non-farm payrolls to rise modestly in December in the Labor Department’s employment report, according to Bloomberg data. But out of the consensus estimate, several individual economists anticipated that the Department of Labor would report its first payroll drop in eight months, similar to the ADP impression.
However, at the end of the month, Congress approved a $ 900 billion stimulus package, which included additional unemployment benefits, as well as a replacement of funds for the Pay Check Protection Program (PPP). PPP loans are set up to help companies across the country keep their workforce employed, offering a lifeline for companies awaiting widespread reopening when the vaccine distribution is expanded.
“COVID-19 is likely to be a significant hurdle for the economy at the turn of the year,” said JPMorgan economist Bruce Kasman in a recent note. “But now we see more momentum than we anticipated towards this weakening [with] fiscal policy support comes more quickly than we previously believed. “
“Vaccines continue to be launched in the US and we believe that the combination of fiscal support and better control of COVID-19 will generate strong growth in mid-2021,” he added.
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Emily McCormick is a reporter at Yahoo Finance. Follow her on Twitter: @emily_mcck
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