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Commentary on today’s U.S. Bureau of Labor Statistics Employment Situation Report
By Gad Levanon, Head of the Labor Markets Institute at The Conference Board
In December the number of jobs declined by 140,000, marking the first decline since April. The published unemployment rate remained unchanged at 6.7 percent, but the true rate, after adjusting for the misclassification error, rose from 7.1 to 7.3 percent. The unemployment rate for women and Hispanics rose more visibly. The labor force participation remained unchanged at 61.5 percent.
The drop in employment is primarily due to three factors: 1) deteriorating consumer demand for in-person services because of the acceleration in the spread of the virus; 2) the growing stringency of state and local governments’ pandemic-related policies; and 3) consumers’ growing fears over getting infected. Consumer spending was already down in November, partly driven by lower spending on restaurants and hotels.
The in-person services industries were also the hardest-hit in today’s jobs report. Much of the drop – 372,000 jobs – came from restaurant and bars. Amusements, gambling & recreation industries shed seven percent of their jobs in one month. The large drop in the number of jobs in in-person industries more than offset solid gains in the rest of the labor market.
In the next 1-2 months, we should not expect good news about the spread of the virus. If Europe is any guide, the number of infections could significantly increase. On the upside, the faster than expected fiscal support is providing a larger than expected income boost to consumers. But due to the deteriorating pandemic conditions, these additional funds are unlikely to be directed towards in-person services. These industries are likely to continue to shed jobs, especially in food services. The combination of restrictions on indoor dining and the colder temperature preventing outdoor dining will continue to hurt restaurant jobs for the rest of the winter.
Overall, the drop in employment in in-person services could more than offset the increase in other industries, and lead to a decline in the number of jobs in the US in January-February. The unemployment rate should slightly increase during that period.
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