New restrictions will drive renewed payroll losses - Capital Economics
US Economics

New restrictions will drive renewed payroll losses

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Written by Michael Pearce
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We estimate that non-farm payrolls fell by 100,000 in December, the first decline since April.

We estimate that non-farm payrolls fell by 100,000 in December, the first decline since April.

Employment gains have been slowing in recent months, as restrictions to curb the spread of the resurgent coronavirus have been tightened. The muted 245,000 increase in non-farm payrolls in November included a near-stalling in leisure & hospitality employment and a modest decline in retail payrolls. All the indications are that activity and employment have softened since then. Data covering the whole month, rather than just the mid-month snapshot captured by the payroll survey, were notably weaker in November, with the high-frequency indicators pointing to a slightly larger decline in December.

That softness is reflected in more traditional timely indicators too, including the weekly jobless claims figures. Seasonal adjustment difficulties around the holidays mean week-to-week changes are hard to interpret, but there has been a clear turnaround, with claims trending higher again. (See Chart 1.) The employment components of the flash Markit PMIs also point to a loss of momentum in service-sector hiring, though the manufacturing sector does appear to be holding up better.

Chart 1: Initial Jobless Claims (000s)

Source: Refinitiv

It is the weakness in the employment-intensive discretionary service sectors that is most troubling for the December payroll figures. Close to one third of the plunge in overall payrolls in the spring and a similar share of the rebound since then was due to swings in employment in food services. The industry has once again borne the brunt of renewed restrictions on activity. Customer mobility data suggest the sector alone could have shed hundreds of thousands of jobs last month. (See Chart 2.)

Chart 2: Restaurant Visits & Payrolls

Sources: Refinitiv, NinthDecimal

Consumer footfall in malls and other leisure venues appears to have held up better, suggesting that the hiring picture in other service sectors will be more robust. With national virus numbers still trending slightly higher, however, we could see further declines in payrolls in January too.

Overall, we estimate that non-farm payrolls fell by 100,000 in December, which would leave total employment 10 million below the pre-pandemic February level. That is still a bigger shortfall than the 8.7 million peak-to-trough fall in employment following the 2008/09 financial crisis.

We anticipate that the unemployment rate will edge back up to 6.8% from 6.7% although, with the labour force still 4 million smaller than its pre-pandemic level, that is arguably understating the degree of labour market slack. Even so, wage growth has been surprisingly robust. The average hourly earnings figures are overstating wage growth because employment declines have been concentrated among lower-earning workers. But data that adjust for that effect, including the Atlanta Fed median wage tracker, suggest underlying wage growth has been little changed since February, despite higher unemployment.

Table 1: Employment Data

Labour Market Indicators

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec1

Implication for Payroll Growth

Jobless Claims (Monthly Ave.)

2,608

1,499

1,369

993

870

791

741

837

Worse

Jobless Claims (for week including the 12th)

2,446

1,540

1,422

1,104

866

797

748

892

Worse

Challenger Job Cut Announcements (SA)

384.9

187.5

285.6

124.3

125.9

84.4

64.7

Better

Job Openings Rate

3.9

4.2

4.6

4.3

4.4

4.5

Worse

Markit Manufacturing Employment Index

38.2

47.6

49.8

53.2

52.6

51.3

51.6

52.1

Better

Markit Services Employment Index

39.2

48.1

50.2

55.2

54.4

53.1

58.6

53.9

Worse

ADP Private Payroll Employment Survey

3,341

4,486

216

482

754

404

307

Worse

CE Estimated Change in Non-Farm Payrolls

-9,000

5,000

1,000

1,000

800

600

400

-100

Consensus Forecast for Non-Farm Payrolls

-8,000

3,000

1,600

1,400

850

600

469

100

Actual Change in Non-Farm Payrolls

2,725

4,781

1,761

1,493

711

610

245

Actual Change in Private Payrolls

3,236

4,729

1,526

1,028

930

877

344

Consensus Forecast

Other Employment Report Data

Unemployment Rate (%)

13.3

11.1

10.2

8.4

7.9

6.9

6.7

6.8

6.7

Change in Household Employment

3,839

4,940

1,350

3,756

275

2,243

-74

All Employees Hours Worked

34.7

34.6

34.6

34.7

34.8

34.8

34.8

34.8

34.8

All Employees Ave. Hourly Earnings (%m/m)

-1.1

-1.3

0.1

0.3

0.1

0.1

0.3

0.2

0.2

All Employees Ave. Hourly Earnings (%y/y)

6.6

4.9

4.6

4.6

4.7

4.4

4.4

4.4

4.4

Sources: Refinitiv, Markit, Capital Economics

1Figures in blue are forecasts

Chart 3: Actual & Estimated Change in Non-Farm Payrolls (000s)

Sources: Refinitiv, Capital Economics


Michael Pearce, Senior US Economist, +1 646 583 3163, michael.pearce@capitaleconomics.com