Key Points

  • December’s payroll report was weaker-than-expected; but not without some bright spots.

  • Small business trends bear watching—notably hiring plans as well as most significant constraints on hiring.

  • Economic “scarring” from the pandemic is likely to be significant—in the labor market, but also in terms of “belief changes.”

Last week was shocking and extraordinarily sad; and as if Americans didn’t have enough with which to contend, it was capped off by a weaker-than-expected December jobs report. The consensus expectation for nonfarm payrolls from the Bureau of Labor Statistics (BLS) was a small gain of 50k; but instead payrolls fell by 140k—the first decline since last April. Before I get to the typically-discussed details of the report, I wanted to point out a statistic that didn’t receive a lot of attention on Friday. Women actually lost 160k jobs last month, vs. a gain of jobs for men. Sadly, COVID continues to wreak disproportionate turmoil on women in the workforce—yet another example of the “K” nature of the pandemic (a sea of haves vs. have-nots).

A positive offset to December’s weakness was a significant upward revision to November’s payrolls; which were revised up from 245k to 336k. Summing up December’s weakness with prior payroll gains, as you can see below, we still have nine million jobs to go before we get back to pre-pandemic levels.

Payrolls’ Level

Bright, and not-so-bright, spots

The Household Survey, from which the unemployment rate is calculated, also had some data to cheer. Those working part-time for “economic reasons” fell 471k—to a nine-month low—while full-time jobs rose by 397k. There were also positive headlines around the 0.8% surge in average hourly earnings (AHE); but lost in the headline cheering was the fact that the huge job losses in leisure/hospitality (discussed below) have some of the lowest wages. Remember how math and averages work: you eliminate a bunch of smaller numbers from an average, and the average increases. In addition, the index of aggregate hours worked fell 0.4% last month, which was the first decline since last April.

Even if we weren’t in the midst of the virus’ resurgence, along with regional lockdowns/restrictions, simple math was going to dictate a less-robust phase of job growth. The initial reopening of the economy last spring allowed many workers to come back; and thus led to a spike in job growth (first chart below), and a commensurate decline in temporary layoffs (second chart below).

Payrolls’ Monthly Change

Temporary vs. Permanent