Nearly half a million jobs were lost in December in restaurants, casinos and other businesses most impacted by the spreading pandemic, but strong job gains in other areas show an encouraging resilience in the labor market.
The drop in nonfarm payrolls of 140,000 in December was well below the gain of 50,000 jobs expected by economists. The unemployment rate was unchanged at 6.7%, as was the number of unemployed, at 10.7 million.
"It's a Covid jobs report, heavily concentrated in restaurants and bars, and education," said Diane Swonk, Grant Thornton chief economist. "Schools that had opened had to close again, and universities went online."
The jobs report comes as the U.S. death toll from Covid-19 reached a record 4,000 in one day. Economists say the negative December jobs report, the first decline in eight months, underscores how important it is to speed vaccinations and curb the spreading virus, so businesses can recover. January could also see job declines.
The December job losses were largest in food services and drinking places, affecting 372,000 workers. Employment in casinos and other areas of recreation fell by 92,000. Hotels and accommodations were down 24,000. All told, the leisure and hospitality industry has lost 3.9 million jobs, or 23.2%, since February.
In December, education payrolls declined by 63,000 in December, and government jobs fell by 45,000.
"Outside of that, the labor market showed very good resilience. That's the silver lining," said Michael Gapen, chief U.S. economist at Barclays. "To me, it certainly points out that if we gain control of the pandemic through increased vaccinations, then these jobs should come back."
Economists said the latest stimulus package, with special unemployment benefits and checks to individuals should help the economy, and Paycheck Protection Program funds should help small businesses. The next relief package is expected to be quickly approved after President-elect Joe Biden is sworn in Jan. 20.
"Our expectation right now is we're going through weaker periods in December, in January and probably still in February things will be sluggish," Jan Hatzius, Goldman Sachs chief U.S. economist, said on CNBC. "But as we get into the spring, we're expecting a very strong recovery." He said the economy should be helped by better virus news, vaccinations and more fiscal stimulus.
Hatzius said he expects an additional $750 billion in relief on top of the latest $900 billion.
"This was resurgence in Covid cases, and not weaker demand, taking us down further," said Swonk. "What I worry about is a lot of the restaurants and bars may have closed for good before the stimulus got to them."
Swonk said the economy is losing momentum but fighting the virus impact is like a marathon and the economy should strengthen as it is controlled. "We need to get through the hardest mile, which is ahead of us," she said.
The positives in the jobs report included an increase in professional and business services employment of 161,000, though 68,000 were in temporary help services. Retail trade added 121,000, with half in general merchandise stores such as warehouse clubs and big-box discounters. Manufacturing added 38,000 jobs, and construction rose by 51,000.
There was also an upward revision of 135,000 jobs in October and November.
Luke Tilley, chief economist at Wilmington Trust, said one of the big concerns is a deeper scarring of the economy from prolonged unemployment. "If most of the jobs are lost because of Covid, then as Covid comes under control you're going to have less of a scarring. The permanent scarring would come from two different places. There's the very familiar story with people out of work for a long time who lose their skills. The other part of the story is if businesses have learned to operate with fewer people," he said.
Tilley said it was positive that there was a sharp drop in the number of people who viewed themselves as permanently unemployed. That number fell by 500,000 to 4.2 million, and there was an increase of 277,000 people who saw themselves as temporarily unemployed, the first upward move in that number since spring, he added.