WASHINGTON (Reuters) – US private companies dropped employees for the first time in eight months in December as out of control COVID-19 infections sparked a new wave of corporate restrictions, setting the tone for what is likely to be a brutal winter for the economy.
Wednesday’s ADP National Employment Report showed job losses across all industries last month as the coronavirus outbreak kept many consumers and employees at home. While the report underscored the scale of the crisis, the economy was unlikely to slide back into recession, thanks to additional fiscal stimulus measures approved in late December.
The ADP report contributed to declining consumer spending and persistently high layoffs by suggesting that the economy lost significant momentum by the end of 2020. Minutes of the Federal Reserve’s meeting of December 15-16, released Wednesday, revealed that policymakers expected things to skyrocket “to be particularly challenging for the labor market in the coming months.”
“America’s great job machine has hit a wall of increasing coronavirus cases and state lockouts, putting the entire economic recovery from recession at risk,” said Chris Rupkey, chief economist at MUFG in New York. “At the heart of any recession is job losses, and right now the drop in the number of jobs towards the end of the year indicates that the dark days of the labor market returned last spring.”
Private payrolls fell 123,000 jobs last month, the first drop since April, after an increase of 304,000 in November. Economists polled by Reuters had predicted that private payrolls would increase by 88,000 by December.
The ADP report was developed jointly with Moody’s Analytics. While it has a spotty track record predicting that private government payroll counts because of differences in methodology, it is still being watched for clues about the health of the job market.
(GRAPH: ADP -)
According to the U.S. Centers for Disease Control and Prevention, COVID-19 cases in the United States have risen to more than 20 million, with a death toll of more than 352,000 since the virus first emerged in China in late 2019.
In addition to the virus, the labor market is hampered by government delays in providing another aid package for businesses and the unemployed.
More than $ 3 trillion in tax incentives helped companies recruit workers and keep others on payroll. It also helped millions of unemployed and underemployed Americans pay bills and maintain spending, leading to record economic growth in the third quarter. Nearly $ 900 billion in additional government bailout money was approved in late December.
“While the economy is on the verge of a double dip, I don’t think so,” Moody’s Analytics chief economist Mark Zandi told reporters. “The additional $ 900 billion will help keep the economy from slipping back into recession.”
More tax incentives are likely. Democrats won one Senate race in Georgia and led in another on Wednesday, moving closer to a surprise move in a former Republican stronghold that would give them control of Congress and more power to advance President-elect Joe Biden’s agenda.
Stocks on Wall Street rallied, with the Dow and the S&P 500 reaching record highs as investors bet on more stimulus and infrastructure spending from a Democrat-led congress. The dollar gained against a basket of currencies. US Treasury bond prices have fallen.
WIDE WEAKNESS
In manufacturing, 21,000 jobs were cut in December, while payrolls in private services fell by 105,000. Small businesses lost 13,000 jobs. Payrolls of large corporations fell by 147,000. Medium-sized companions hired 37,000 workers last month.
The ADP report was released ahead of the government’s close and comprehensive monthly employment report on Friday. According to a Reuters survey of economists, private nonfarm payrolls likely increased 98,000 jobs in December, after an increase of 344,000 in November.
As government payrolls are expected to fall again last month, total nonfarm payrolls are forecast to increase by 71,000 jobs, after an increase of 245,000 in November. That would be the smallest gain since the job recovery began in May, and means that the economy has recouped about 12.5 million of the 22.2 million jobs lost in March and April.
Economists predict it may take some time for all lost jobs to be restored, even with additional fiscal support and the herd’s immunity to the virus from vaccines being rolled out. The drop in ADP’s private payrolls supports several economists’ expectations that the economy will cut jobs in December, although those dire forecasts were countered by a poll on Tuesday that showed factory employment rebounded in December.
Other economists said this pushed for job growth last month, though at a significantly slower pace than November.
Economic growth estimates for the fourth quarter are around 5.0% on an annual basis. The economy grew at a historic rate of 33.4% in the third quarter, after contracting by 31.4% in the April-June period, the deepest since the government began tracking records in 1947.
Reporting by Lucia Mutikani; Editing by Andrea Ricci