Job creation came to a halt in December as restrictions brought on by surging Covid-19 cases hammered virus-sensitive industries, particularly bars and restaurants, which lost nearly half a million positions.

The Labor Department reported Friday that nonfarm payrolls fell by 140,000. That was below expectations for 50,000 from economists surveyed by Dow Jones. It was the first monthly drop since April.

The unemployment rate was unchanged at 6.7%, compared to a 6.8% estimate. An alternative unemployment measure that includes discouraged workers and those holding part-time jobs for economic reasons declined to 11.7% from 12%.

Chart showing the U.S. unemployment rate from January 2007 through December 2020.

Markets shrugged off the disappointing report, likely on the anticipation that it strengthened the case for more stimulus from Congress and reflected a likely temporary reduction in jobs that would be reversed as Covid vaccine distribution accelerated. Stocks opened Friday’s trading with modest gains.

“In some ways, the bad news is good news, because it increases the probability for more stimulus,” said Michael Arone, chief investment strategist for US SPDR Business. “Investors have convinced themselves this week that given what’s happened in Georgia, given the weakness in the economic data, that more help is on the way. We’re going to get more fiscal help, and it’s likely to happen pretty soon.”

Since a recovery that began in May, the economy had recovered 12.3 million of the jobs lost. The biggest hit has come in the hospitality industry, where hotels, restaurants, and bars suffered under the yoke of restrictions that limited travel, dining, and drinking. December’s job tally showed the impact has intensified.

The industry saw a plunge of 498,000 positions for the month, with most coming in restaurants and bars, which saw a drop of 372,000. Overall, hospitality is down 3.9 million jobs since January, a 23.2% drop, the Bureau of Labor Statistics report showed.

The summer saw many of the restrictions on the establishment's limits lifted, but they were reimposed over the past few months as coronavirus cases rose and states and communities again eliminated or restricted indoor dining and drinking.

Investors, though, have been looking through the current spate of bad news and remaining focused on what’s ahead.

One bright spot was that while temporary layoffs increased by 277,000 to 3 million, the level of permanent job losses actually declined by 348,000 to 3.4 million.

“If we can get the virus under control, the economy has shown there’s a lot of pent-up consumer demand. People want to go out and engage in a variety of activities,” said Patrick Leary, chief market strategist and senior trader at Incapital. “Even though the vaccine rollout has been slow to start, it will eventually come into play. The market is rationally looking at that desired outcome.”

As an extraordinary year came to a close — some 22 million workers were furloughed in March and April — the jobs market had been staging a sharp recovery that nonetheless left about half those displaced on the sidelines. That recovery came to a halt in December, though the news was not all bad.

Outside of hospitality, the other job losses were more muted, and several industries posted solid gains.

Private education also saw a drop, 63,000, while government jobs contracted again with the loss of 45,000 positions. The other services category was down 22,000.

Professional and business services saw growth of 161,000 while retail added 121,000 during the holiday shopping season and construction contributed 51,000.

Transportation and warehousing added 47,000 and health care grew by 39,000. The wholesale trade also saw a 25,000 gain.

Along with those gains, prior months also saw upward revisions.

The October count rose to 645,000 from the previous 610,000 estimates, while November saw a boost of 91,000 up to 336,000.

The hit to the jobs market comes even though economic growth otherwise looks solid in the fourth quarter. The Atlanta Fed’s GDPNow tracker sees the U.S. economy accelerating 8.5% for the final three months of the year, though economists expect the first quarter in 2021 to show either little or no growth.

Labor force participation is stagnating, and some workers may never come back.

The people who have left the labor force have not been replaced

Share of the working-age population who are in the labor force (employed, unemployed but looking for work or on temporary layoff)

Jan. ’19AprilJulyOct.Jan. ’20AprilJulyOct.5658606264%61.5%61.5%RECESSIONS
By Ella Koeze·Seasonally adjusted·Source: Bureau of Labor Statistics

The share of Americans who are either working or looking for jobs remains well below pre-pandemic levels, data released Friday showed, a sign that many working-age adults have been pushed onto the labor market’s sidelines as the health crisis persists.

Questions loom over whether and when the participation rate — the share of Americans who are employed or applying for work — will rebound. It held steady at 61.5 percent in December, down about 1.8 percentage points from February 2020. For people in their prime working years, which the Bureau of Labor Statistics defines as 25 to 54 years old, labor force participation is hovering around 81 percent, down 1.9 percent compared with February.

The drop in participation has been slightly greater for women as service-sector jobs take heavy losses and as child-care duties disproportionately weigh on their ability to work. For prime-age women, participation had declined to 75 percent in December from 77.1 percent in February. For men, it was at 87.3 percent, down from a pre-pandemic 89.1 percent.

It could be good news that the rate remained roughly stable in December relative to the prior month even as job losses resumed — suggesting that people weren’t growing discouraged and giving up on work altogether as the public health situation worsened.

But policymakers are worried that some workers may never come back. That would leave households with less income and the economy as a whole with less potential productive capacity. A desire to avoid such long-term scarring has spurred both Congress’ major spending packages and the Federal Reserve’s low-interest-rate policies.

“Participation in the labor market remains notably below pre-pandemic levels,” Jerome H. Powell, the Fed’s chair, said at his December news conference. “Although there has been much progress in the labor market since the spring, we will not lose sight of the millions of Americans who remain out of work.”


Hispanic unemployment shot up in the latest report.

December’s job losses hit different demographic groups unevenly

Unemployment rates for BlackHispanicAsian and white workers
Feb.Mar.AprilMayJuneJulyAug.Sept.Oct.Nov.Dec.05101520%
Unemployment rates for men and women
Feb.Mar.AprilMayJuneJulyAug.Sept.Oct.Nov.Dec.05101520%
By Ella Koeze·Rates are seasonally adjusted except those for Asian men and women.·Source: Bureau of Labor Statistics

Unemployment rates for Hispanic workers shot up in December, even as the jobless rate moderated for Black workers and held roughly steady for whites, showing that the costs of recent job losses were being felt unevenly across demographic groups.

The Hispanic or Latino unemployment rate jumped to 9.3 percent from 8.4 percent in November, partly reversing a rapid recovery since the figure popped to 18.9 percent in April. Before the pandemic, the Hispanic jobless rate was hovering around 4.4 percent.

At the same time, the Black unemployment rate continued a gradual decline, falling to 9.9 percent in December from 10.3 percent the month before. Unemployment for Black workers didn’t jump quite as high early in the pandemic — it peaked at 16.7 percent in April and May — but it has been easing more slowly than Hispanic joblessness.

A major concern throughout the pandemic has been the economic burden falling on those with the fewest resources to weather it. Job losses have been heavy in service businesses, particularly in relatively low-wage occupations that disproportionately employ racial and ethnic minorities.

White workers have been faring better than other groups. Their unemployment rate ticked up slightly to 6 percent in December, from 5.9 percent in November, but is down from a peak of 14.1 percent last year. Still, that is about twice the 3 percent rate last February.

Asian workers are also doing comparatively well, with their unemployment rate at 5.9 percent in December, though that’s up from 2.4 percent in February.

State and local governments have been slashing jobs.

State and local governments continued to cut payroll employment in December, a sign that a crucial sector was bleeding jobs nine months into the pandemic.

Those governments account for about 13 percent of employment in the United States, which makes their trajectory extremely important to the nation’s labor market outlook. Because most are required to balance their budgets, lower-income or higher expenses can lead to big job cuts.

State and local employers shed 51,000 workers in December compared with the prior month. As of last month, they reported 1.4 million fewer jobs than in February, the month before the pandemic job losses started.

The big employment cuts come despite revenue losses that appear milder than many analysts had expected at the pandemic’s outset. Louise Sheiner at the Brookings Institution estimated in a recent post that states would miss $350 billion in revenue over three years. Meanwhile, by her estimation, they received about $280 billion in direct and indirect federal aid in a March relief package, and about $120 billion more — largely indirectly — with the most recent fiscal package.

But expenses have shot up as the states try to deal with the public health crisis, which could leave budgets under strain even as federal aid helps to overcome revenue shortfalls. And the economic hit from the virus has not been evenly spread — some places are struggling more acutely.

From an employment standpoint, it’s also important that states were finalizing budgets when worse outcomes were expected and may have cut back, as a result, Ms. Sheiner wrote.

“What we’re seeing is that it’s different state to state,” Jerome H. Powell, the Fed chair, said at a news conference in December. But he pointed out that many employees had been cut from state payrolls, at least temporarily. “We’re watching carefully to understand why that many people have been let go and what really are the sources,” he said.