December 2020 Employment Report

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The Bureau of Labor Statistics’ (BLS) establishment survey showed non-farm employers shed 140,000 jobs in December (+100,000 expected). As part of the annual revision process, October and November employment changes were revised up by a combined 135,000 (October: +44,000; November: +91,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) was unchanged at 6.7% as most (re)entrants to the labor force (+31,000) apparently found employment (+21,000). 

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Observations from the employment reports include:

* Changes in the establishment (-140,000 jobs) and household surveys (+21,000 employed) were not well correlated. 

* Goods-producing industries gained 93,000 jobs, while service-providing employment lost a much greater 233,000 jobs. Job losses in leisure and hospitality (-498,000) and in educational services (-62,500) were partially offset by gains in professional and business services (+161,000), retail trade (+120,500), and construction (+51,000). Employment in government declined (-45,000), especially among state education workers (-19,900) and local government excluding education (-31,500). Manufacturing expanded by 38,000 jobs. That result is consistent with the Institute for Supply Management’s (ISM) manufacturing employment sub-index, which expanded in December. Wood Products employment ticked up by 1,700 (ISM was unchanged); Paper and Paper Products: +700 (ISM was unchanged); Construction: +51,000 (ISM decreased).

* As a related point, all prior job gains in manufacturing since February 2010 were erased during March and April. Although 820,000 of those nearly 1.4 million jobs have been refilled since then, the recovery has slowed in recent months. More remarkably, employment in Food Services & Drinking Places (i.e., wait staff and bartender) plunged by 6.1 million jobs during those two months -- to a level below the earliest data (January 1990) for that industry. Nearly 4.0 million of those jobs have subsequently reappeared, but erosion is again occurring because of renewed lockdowns.

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* The number of employment-age persons not in the labor force rose (115,000) to 100.7 million. Nonetheless, the employment-population ratio (EPR) was stable at 57.4%; i.e., nearly six in 10 of the employment-age population is presently employed. 

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* Although the civilian labor force expanded by 31,000 in December, the labor force participation rate was unchanged at 61.5%. Meanwhile, average hourly earnings of all private employees jumped by $0.23 to $29.81, resulting in a 5.1% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose by $0.20, to $25.09 (+5.2% YoY). These increases largely reflect the disproportionate number of lower-paid workers in leisure and hospitality who went off payrolls, which put upward pressure on the average hourly earnings estimates.

Since the average workweek for all employees on private nonfarm payrolls declined by 0.1 hour, average weekly earnings increased by $5.03, to $1,034.41 (+4.6% YoY). With the consumer price index running at an annual rate of +1.2% in November, whether consumers are keeping up with price inflation depends primarily upon whether or not they are working.

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* Full-time jobs rose (+397,000) to 124.7 million. Workers employed part time for economic reasons (shown in the graph above) -- e.g., slack work or business conditions, or could find only part-time work -- dropped by 471,000, whereas those working part time for non-economic reasons fell by 343,000; multiple-job holders retreated by 99,000. 

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For a “sanity test” of the employment numbers, we consult employment withholding taxes published by the U.S. Treasury. Although “noisy” and highly seasonal, the data show the amount withheld in December jumped by $52.3 billion, to $247.0 billion (+26.9% MoM; +1.4% YoY). To reduce some of the monthly volatility and determine broader trends, we average the most recent three months of data and estimate a percentage change from the same months in the previous year. The average of the three months ending December was 2.3% below the year-earlier average. As we have previously mentioned, President Trump’s executive order deferring certain payroll obligations through December 31, 2020 complicates comparisons with earlier data.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.