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ADP chief economist on December jobs report

ADP’s chief economist Nela Richardson joins Yahoo Finance Live to discuss December’s jobs report, which showed job growth turned negative for the first time since April in the final month of 2020.

Video Transcript

- We have been seeing the futures rise this morning in the wake of that jobs report, even though the overall number was worse than estimated. But it's not unusual to see that kind of activity, what you-- sort of a counterintuitive move in the futures. We are joined now by Nela Richardson, ADP Chief Economist. And in fact, the ADP numbers, of course, Nela, pre-staged the number today. The report coming out on Wednesday showed a drop in private payrolls and indeed that was then validated by the numbers that we got today. What do you think happened? Why did we see this pullback in job growth in the month of December?

NELA RICHARDSON: Well it was the first pullback since April and it wasn't unexpected. We've seen the slowing momentum in jobs created every month coming into the winter months and it really has to do with COVID. It is inescapable that the pandemic is still in the driver's seat. And as we saw the case count rise in October, November, December, we also saw a slowdown in terms of the number of jobs recovered each month. And so we knew going in that this was going to be a soft month because in December COVID cases had been surging. And we got what we expected, which is a number that's on the wrong side of 0 in terms of jobs recovered.

- And you know, Nela, when you look at that relationship between the spread of the virus and the labor market perhaps this data isn't unexpected. But another concern that we've discussed this morning is long term scarring in the labor market. People becoming disengaged for months at a time and all of a sudden they are permanently unemployed. How worried are you about that at this stage in the recovery when again, we know the virus has an impact here but some of those post-crisis kind of memories are quickly seeping back in for some of us.

NELA RICHARDSON: Yeah. I'm quite worried about that. In fact, when we looked at those when jobs fell off a cliff in March and April due to the lockdown the one comfort that the entire market held on directly to is that these job losses were temporary. And as the COVID crisis is extending longer and longer we are worried that the job losses actually moved from temporary to permanent. And we know that this has long term effects on workers in terms of their re-entry into jobs.

But there's a second worry that feeds into this permanent job loss scenario and that worry is where are these firms. We're not just looking at disappearing workers in jobs, we're looking at disappearing firms, especially in leisure and hospitality. These smaller firms who had to shut down or are operating at reduced capacity still have some struggles in the months ahead. And even though I share a lot of the market's optimism about the long term prospects for the economy, the pent up demand, the low interest rates, the institution of new stimulus. In the short term on the street there is some struggle for small firms and for low income workers who are most tied to the service sector jobs.

- Now it's a great point, Nela, small businesses continue to really, really, really, struggle. And to that point, do you think small businesses will lead the economic recovery? Are there going to-- are they going to lead the job market recovery as more people get vaccinated like they typically do?

NELA RICHARDSON: Good to see you. You know, job-- small firms are the engine of growth, in terms of the job market. And what we've seen at ADP is that PPP-eligible firms, those firms that were able to get that stimulus at the first part of the year, increased the number of employees by over 3%. That means in the peak month of job creation, in June, PPP helped stimulate two million jobs by our estimate. And so, yes, we think in a combination of pent up demand, low interest rates, and stimulus, will help small firms lead the charge into the future in terms of the economy.

- Nela, since you mentioned the stimulus, I also want to ask you about the checks, right? Because there is this view growing that we will see this next Congress consider another stimulus bill. What is the magic number in terms of the checks? Is it 2000, is that the right number to really help bridge the gap until we get more people vaccinated and come out of this?

NELA RICHARDSON: I think rather than the number being right, it's the distribution. Getting that right. We want to make sure that the people who receive those direct payments are the people who will be most likely to spend it, not to save it. And so the question is, how do we target these funds? Not just so that anybody who qualifies by this very shallow criteria gets a stimulus check but the people who are most likely to spend, which are the people who are hardest hit by the COVID economy. The people who are low income workers, the people who are experiencing job loss, are the ones who get the checks.

And I think that's going to be the challenge in any new stimulus measure. Getting it into the right hands even-- regardless of the number. I think there's a lot of attention to the number. It really should be targeted to specific households in terms of the help and the usefulness and pushing the economy forward.

- Well, we'll see if-- if they take your advice. Nela Richardson, thank you so much for joining us. It's great to see you. Nela Richardson is the chief economist at ADP. Be well, Nela.

NELA RICHARDSON: Good to see you. Thank you.