Labor Market Recovery on Hold

The U.S. Lost Jobs in December

Robert Spendlove and Drew Maggelet Jan 8, 2021

After seven months of growth, the labor market experienced a contraction in December. The U.S. lost 140,000 jobs last month, with most of the losses coming in the leisure and hospitality sector. Although the loss of jobs represents a step back in the economic recovery, the new round of federal economic stimulus and rollout of a vaccine provides optimism that job losses in December will be temporary.

december 2020 jobs report graph

Top Takeaways from the Report

A Step Back

After 7 months of positive job growth, the U.S. labor market took a step back in December, with the U.S. economy shedding 140,000 jobs. This represents a reversal from the 336,000 jobs added in November. Although the U.S. added more jobs in the previous seven months than it did in the 10-year period that ended in March, the labor market still has nearly 10 million fewer workers than it did at its peak in February. A major cause of the labor market contraction in December was continued growth of Coronavirus cases throughout the world, which forced governments to impose stronger restrictions to control the spread of the virus. 

dec 2020 job indicators

Although the U.S. lost jobs in December, the unemployment rate remained unchanged at 6.7%. The labor force participation rate also remained unchanged at 61.5%. The underemployment rate, or the combined number of unemployed and underemployed workers, declined by 0.3%.

Long-term unemployment remains historically high, but increased by only 27,000 in December, compared with a combined increase of 2,336,000 from August to November. Long-term unemployment can significantly hamper economic recovery as those who remain out of the workforce more than 6 months struggle to find jobs as their skills lapse. Thankfully, while high, the number of long-term unemployed is not yet close to the peak of 6.8 million seen during the Great Recession.

Wage growth moved up to 5.1% in December, from an annualized rate of 4.4% in November. While accelerating wage growth is usually a good sign of a strengthening economy, this was a sign that lower-wage workers continue to be inordinately impacted by the December job losses.

Growth by Industry

Although both the public and private sector lost jobs month to month in December, industry level data shows a far more divergent picture across different sectors of the economy. The large number of private sector jobs lost is largely due to the huge decline in leisure and hospitality jobs. Excluding leisure and hospitality, the U.S. actually added 358,000 jobs in December.

The professional and business services sector experienced strong job growth last month, gaining 161,000 jobs in December, largely thanks to an increase in temporary help services jobs (+68,000). The large number of temporary hires may indicate employers are hesitant to bring on new hires long term due to uncertain economic conditions.  Retail trade also saw a large increase, adding 121,000 jobs over the last month. The lion’s share of those gains came from general merchandise stores, such as Walmart and Target, which added 58,700 jobs. Other notable growth industries included construction (+51,000), transportation and warehousing (+47,000), healthcare (+39,000), manufacturing (+38,000), and wholesale trade (+25,000).

national employment change dec 2020

On the other hand, leisure and hospitality saw its 2nd largest monthly decline this year, with the industry losing 498,000 jobs in December. Most of the jobs lost were likely due to increased bar and restaurant lockdowns, with food services and drinking places losing 397,000 jobs. The amusements, gambling, and recreation (-92,000) and accommodation sectors (-24,000) also saw significant job losses.

The public sector continued its months-long trend of declining jobs, losing 45,000 jobs in December. Most of the government sector losses came from local government excluding education (-32,000) and state government education (-20,000).

The Bottom Line

Better Now Than Later

Given that the U.S. remains about 10 million jobs shy of where it was in February, the loss of jobs last month is discouraging. However, Congress recently passed a new economic stimulus bill that will give most Americans a direct payment of $600, reboot the popular Paycheck Protection Program, and provide expanded unemployment through at least March.

The overall decline of jobs nationwide is never a good thing, but given that the declines were largely due to temporary lockdowns and not declining business activity, there is hope that December’s loss of jobs is a temporary bump in the road to recovery.

The deployment of vaccines provides a light at the end of the tunnel and hope that the economy will be able to get back to its previous highs more quickly than some had initially estimated. As more and more of the population gets vaccines, consumers will feel safer and more confident in the economy and more businesses will be able to return to normal functioning.


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