Raging COVID-19 cases are expected to have constrained U.S. labor market in December

WASHINGTON (Reuters) – The U.S. economy likely created the fewest jobs in seven months in December or even laid off workers as the country faltered under the onslaught of COVID-19 infections, marking the start of what should be a dark winter.

Despite weakness forecast in the Labor Department’s closely watched employment report on Friday, the economy is unlikely to fall back into recession, with additional pandemic relief approved by the government in late December providing a trickle of security. More fiscal stimulus is expected.

Democrats won two Senate seats in Georgia’s run-off election this week, taking control of the chamber and improving the prospects for President-elect Joe Biden’s legislative agenda.

Biden will be sworn in on Jan.20, with the economy taking back just over half of the 22.2 million jobs lost during the recession that began in February. At least 19 million Americans receive unemployment checks.

“Job growth has slowed, since the easy part of the labor market recovery, calling back workers, almost ran its course,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pa. . “The surge in COVID-19 cases and tighter restrictions to contain the spread of the virus took a heavy toll on the job market in December.”

Non-farm payrolls likely increased by 77,000 jobs last month after increasing 245,000 in November, according to a Reuters survey of economists. It would be the smallest gain since the employment recovery started in May and leave employment around 9.763 million jobs below its February peak.

There is even a strong possibility that the payroll fell in December, which would end a seven-month hiring streak. First-time unemployment benefit claims soared in mid-December when employers were polled for the jobs report.

Businesses reported an 18.9% hike in layoffs last month and a measure of service sector employment contracted. Consumers have also been very pessimistic in their assessment of the labor market.

STIMULATES, HOPE VACCINES

But any downsizing is unlikely to be the start of job losses. Congress approved nearly $ 900 billion in additional stimulus last week, which is expected to boost household incomes and consumer spending. Economists predict that the Biden administration will deliver another package by March and increase spending on infrastructure.

There is also optimism that the rollout of coronavirus vaccines will be better coordinated under the new government.

“We are in the midst of a downturn that must overcome holiday closings and the virus outbreak,” said Joel Naroff, chief economist at Naroff Economics in the Netherlands, Pennsylvania. “Hopefully we will see better coordination on the vaccination front, but given the indifference to health shown by the population over the past few months, it is difficult to see that the outbreak of the virus will do anything but get worse before getting better. “

Last month’s payroll was likely held back by job losses in the leisure and hospitality sectors, with most jurisdictions banning indoor dining. The manufacturing and construction industries have likely hired more workers to meet the high demand for goods like automobiles and houses. This highlights what is now called a K-shaped recovery, where higher paid workers are doing well while lower paid workers are struggling.

Government employment probably fell for a fourth consecutive month. Most of the job losses have been in local government education, with most schools switching to e-learning.

The unemployment rate is expected to drop to 6.8% in December from 6.7% in November. The unemployment rate has been underestimated by people mistakenly classifying themselves as “employed but absent from work”.

The government will revise the series of household surveys from which the unemployment rate is derived on Friday, going back five years. The revisions should not, however, correct the classification error.

“Given the massive fluctuations in most major household survey series in 2020, these revisions will likely be larger than usual this year, but they will obviously not change the base scenario of a sharp decline in employment in the spring, followed by one but an incomplete recovery in the months that followed, ”said Lou Crandall, chief economist at Wrightson ICAP in Jersey City.

The revisions will include the labor force participation rate, or the proportion of working-age Americans who have or are looking for a job, as well as the employment-to-population ratio, which is considered a measure of ability to work. ‘an economy to create jobs.