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December jobs report: Payrolls drop for the first time since April, unemployment rate steadies at 6.7%

U.S. job growth turned negative for the first time since April in the final month of 2020, as the pandemic that rocked the economy over the past year dealt yet another blow to the labor market.

The Labor Department released its December jobs report Friday morning at 8:30 a.m. ET. Here were the main results from the report, compared to consensus estimates compiled by Bloomberg:

  • Change in non-farm payrolls: -140,000 vs. +50,000 expected and a revised +336,000 in November

  • Unemployment rate: 6.7% vs. 6.8% expected and 6.7% in November

  • Average hourly earnings, month-over-month: 0.8% vs. 0.2% expected and 0.3% in November

  • Average hourly earnings, year-over-year: 5.1% vs. 4.5% expected and 4.4% in November

December’s drop in payrolls widened the employment deficit in the labor market from before the pandemic, bringing the economy still more than 9.8 million payrolls short of its February levels. This came even as the payroll gains for each of October and November were upwardly revised by a combined 135,000.

Heading into Friday’s report, consensus economists had braced for a further deceleration in job growth at the end of the year, with employment trends weakening as new virus-related restrictions dampened employment and businesses awaited support from Congress’s latest stimulus package.

“The decline in payroll employment reflects the recent increase in coronavirus (COVID-19) cases and efforts to contain the pandemic,” the Labor Department said in its report Friday.

The survey week for the December jobs report took place over the 12th of the month, during a record surge in national coronavirus cases and before lawmakers approved the $900 billion virus-relief package, which extended federal unemployment programs and offered augmented jobless benefits and small-business aid. That week, initial jobless claims surged to a three-month high of nearly 900,000, suggesting a jump in layoffs in the final month of the year.

“Today's report is a harsh reminder that the pandemic controls our economic trajectory,” Daniel Zhao, Glassdoor senior economist, said in an email Friday. “Though the end-of-year relief bill offered temporary reprieve and the start of vaccine distribution offers light at the end of the tunnel, we’re not out of the woods yet.”

Service-sector jobs especially bore the brunt of the job losses in December, unwinding some of their recent recovery. Leisure and hospitality employment sank by 498,000 jobs during the month after gaining 340,000 between October and November, and the industry group remains nearly 4 million payrolls short of its February levels. Education and health services payrolls dropped by 31,000 in December.

Modest job gains in other industries did little to offset these sharp declines. Professional and business services jobs increased by 161,000 in December, and manufacturing jobs increased by 38,000 to come in at more than double the consensus estimate.

Both the unemployment rate and labor force participation rate remained unchanged in December from November, at 6.7% and 61.5%, respectively. Of those unemployed, those classified as being on a temporary layoff rose by 277,000 to 3.0 million in December, holding higher by 2.3 million compared to February. And as of the end of the year, nearly 4 million fewer Americans were working or looking for a job compared to February as the pandemic continued to constrain the size of the U.S. workforce.

“Health concerns about contracting COVID and the need to quarantine or take care of someone else who is sick has kept millions out of the workforce at any given time since the pandemic, particularly older workers,” Wells Fargo economist Jay Bryson said in a note Tuesday. “Parents juggling remote-learning and daycare closures have also found it difficult to continue working or searching for a job. Nearly 1 million parents with children under the age of 18 were not in the labor force in November specifically because of the pandemic.”

“And of course, a lack of job opportunities—as there are nearly 10 million fewer jobs today than back in February— has also contributed to millions of workers remaining on the sidelines of the labor market,” Bryson said.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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