WASHINGTON (Reuters) – The US economy likely created the fewest jobs in seven months or even shed workers in December as the country succumbed to a bout of COVID-19 infections, marking the beginning of what is expected to be a bleak winter .
Despite the expected weakness in the closely watched employment report from the Department of Labor on Friday, the economy is unlikely to fall back into recession, with additional pandemic relief approved by the government in late December providing a backstop. More tax incentives are expected.
Democrats won two Senate seats in Georgia second election this week, giving them control of the chamber and increasing prospects for President-elect Joe Biden’s legislative agenda.
Biden will be sworn in on Jan. 20, with the economy recovering from just over half of the 22.2 million jobs lost in the recession that began in February. At least 19 million Americans receive unemployment checks.
“Job growth is slowing as the easy part of the labor market recovery, workers recall, has largely run its course,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Rising COVID-19 cases and tighter restrictions to contain the spread of the virus were a heavy burden on the labor market in December.”
According to a Reuters survey of economists, the payroll of nonfarm businesses likely increased by 77,000 jobs last month, after an increase from 245,000 in November. That would be the smallest gain since the job recovery began in May, leaving employment around 9.763 million jobs below its peak in February.
In fact, there is a strong possibility that payroll declined in December, ending a seven-month hiring period. First claims for unemployment benefits soared in mid-December when employers were polled for the employment report.
Companies last month announced an 18.9% increase in layoffs, and a measure of employment in the services sector declined. Consumers were also very gloomy in their assessment of the labor market.
STIMULUS, VACCINES HOPE
But any fall in payrolls is unlikely to signal the start of job losses. Congress last week approved nearly $ 900 billion in additional stimulus measures that are expected to increase household income and consumer spending. Economists expect the Biden government to deliver a different package in March and boost infrastructure spending.
There is also optimism that the roll-out of coronavirus vaccines will be better coordinated under the new government.
“We are in the middle of a slowdown due to vacation stops and the virus burst,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “Hopefully we’ll see better coordination on vaccination, but given the health indifference the population has shown in recent months, it’s hard to see that the virus rise will get anything but worse before it gets better.”
Payrolls were likely slowed last month due to job cuts in the leisure and hospitality sectors, with most jurisdictions banning in-house dining. Manufacturing and construction are likely to have hired more workers to meet the strong demand for goods such as cars and houses. That underscores what has come to be known as a K-shaped recovery, where higher-paid workers are doing well while lower-paid workers are struggling.
Government employment is likely to have fallen for the fourth month in a row. Most jobs have been lost in local government education with most schools transitioning to online learning.
The unemployment rate is expected to increase from 6.7% in November to 6.8% in December. The unemployment rate has been underestimated by people who falsely classify themselves as ’employed but absent from work’.
The government will review the series of household surveys from which the unemployment rate is derived on Friday and go back five years. However, the revisions are not expected to correct the classification error.
“Given the tremendous swings in most of the major series of household surveys in 2020, those revisions are likely to be larger than usual this year, but they will obviously not change the fundamental storyline of a sharp drop in employment in the spring, followed by a sustained but incomplete recovery in the months that followed, ”said Lou Crandall, chief economist at Wrightson ICAP in Jersey City.
The revisions include the employment rate, or the percentage of working-age Americans who are employed or looking for a job, as well as the employment / population ratio, which is considered a measure of an economy’s ability to create employment.
Reporting by Lucia Mutikani; Editing by Cynthia Osterman