Insights and Perspectives

The Bureau of Labor Statistics (BLS) released its monthly Current Employment Statistics (CES) report and Current Population Survey (CPS) for December 2020 on Friday, January 8^th. The monthly change in employment given by the CES and the unemployment rate from the CPS are seen as the standard gauges for assessing the health of the U.S. labor market.  The results mark 10 months since the Covid-19 economic lockdown and signal a stall in the labor market recovery, which began in May 2020. The December jobs report caps a year that experienced the worst job loss on record (-9.4 million). The good news is that as more Covid-19 vaccinations are administered, we should see a jump start in the recovery take place later in 2021.

Employment in the U.S. declined as expected in the Geographic Solutions, Inc. (GSI) forecast.  The contraction was a bit more than estimated with the GSI prediction of 23,000 and the 140,000 actual job loss in December.  The forecast outperformed the WSJ Economist Survey which predicted an increase of 50,000.  The GSI forecast was derived by using its internal raw numbers on job openings, complete and incomplete UI applications, and job severance dates listed on the UI applications.  Covid-19 case counts and UI claims from the Department of Labor were the two external indicators inserted into the forecast.

The unemployment rate remained at 6.7%, just under the GSI and WSJ forecast of 6.8%.  This GSI forecast pulled UI claims series from two client states and relied on Covid-19 case counts. 

December jobs in goods-producing industries finished the year strong, increasing by 93,000. While impressive, the addition was not enough to compensate for even half of the 188,000 jobs lost in service-providing industries.

The job market losses were chiefly driven by a severe contraction in the Leisure & Hospitality sector in December that totaled a 498,000 jobs loss. Leisure & Hospitality employment is the most sensitive industry to Covid-19 cases and government response measures. Therefore, its poor performance was somewhat anticipated from the spike in cases throughout some parts of the country. Trade, Transportation, & Utilities employment grew the most of any other sector, and unlike November, its growth was spread among all its subsectors.

The graph below illustrates just how much Leisure & Hospitality continues to struggle compared to other industries. Its employment remains 23.2% below February, more than twice the remaining percentage of any other major sector.

The U-3 unemployment rate is the standard form of measuring unemployment in the U.S. labor market and includes those that are actively seeking a job but unable to find one. The U-3 unemployment rate remained at 6.7% from the previous month.

The labor force participation rate also maintained its 61.5% rate from the previous month. It is somewhat unusual to see a month with both a job loss and a steady unemployment rate also have a labor force participation rate that remains the same. Job loss combined with a steady or falling unemployment rate typically signals that the unemployed are becoming discouraged and dropping out of the labor force altogether. This would have the expected effect of reducing the labor force participation rate. However, the CPS survey gathers its own employment data and includes those who are self-employed or work in the “gig economy” (ex: Uber drivers).  The CPS calculates that employment stayed roughly the same under this method.  

The more expansive U-6 unemployment rate counts discouraged workers who are no longer actively seeking work (and therefore no longer in the labor force) and those that have settled for part-time employment but desire a full-time job.  This measure of unemployment ticked down last month by 0.3% to 11.7%. December’s labor market churn resulted in a lower share of the unemployed who are discouraged and not actively seeking work.  

While December’s labor market report is disappointing, there are signs that economic conditions will improve within the next few months.  The $900 billion in Federal aid signed into law at the end of 2020 and possible further assistance after the new administration is in office will provide relief for the unemployed and businesses and will serve as a modest stimulus during this trailing off period in the job market. However, the real bounce-back will happen when Covid-19 vaccines are widely available and restrictions on activity are lifted.