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January 8, 2021 Blog 2 min read
The economic slowdown is apparent, but the distribution of job gains and losses last month illustrates the unusual duality that exists. Manufacturing and construction jobs are being created as leisure and hospitality payrolls are being slashed, showing times are abnormal.

1.8.21 Employment Situation ChartThe unemployment rate remained at 6.7% in December, but that masks the underlying weakness in the monthly jobs report. The loss of nearly half a million jobs in the leisure and hospitality sector lies squarely at the feet of the COVID-19 surge across the country, the policies put in place to combat its spread, and the changing behavior of consumers focused on reducing their personal risk.

Employers trimmed payrolls by 140,000 last month, well below already-subdued expectations for a gain of 73,000. Offsetting that disappointing monthly tally were upward revisions that added 135,000 to the gains of the two preceding months. The net was still modestly negative, illustrating that job market conditions have continued to soften in lockstep with the slowing pace of economic growth.

As COVID-19 cases surge, lockdown restrictions have been reimposed to curb the spread of the virus. These restrictions include capacity limitations at businesses and restaurants, resulting in layoffs and hiring delays among workers — a significant headwind to the labor market, particularly in the leisure and hospitality sectors.

The economic experience of the past year has been unusual in several regards. The more cyclically sensitive manufacturing sector added 38,000 jobs in December and 116,000 for the fourth quarter, not what one would typically expect at a time that the economy has clearly weakened. Contrast that with the loss of 188,000 service-sector jobs, which historically tend to be more resilient in a typical period of economic weakness. That anomaly reflects the unambiguous underlying cause for the economic challenges faced by the country and reminds us that neither the recession that battered the economy early last year nor the subsequent recovery are typical.

On a positive note, substantial progress has been made on the public health front, as distribution of multiple COVID-19 vaccines has commenced. In time, the availability of vaccines will improve, the health risk will gradually recede, lockdown restrictions will loosen, confidence should improve, and economic growth will reaccelerate. Coming off of an extended period of constricted travel and spending, the potential exists for a significant surge in consumer activity later this year. Still, the economy will have to grind through the near-term risk. The most recent tranche of fiscal aid will help to support to households, businesses, healthcare providers, and state and local governments negatively impacted by the pandemic but won’t eliminate the risk.

The bottom line? As expected, the near-term economic risks created by the COVID-19 resurgence are becoming increasingly apparent. The good news is that there is a clear light at the end of the tunnel and the potential for a very strong resurgence when the economy emerges on the other side; the bad news is until the spread of COVID-19 crests, the economy and labor market will remain vulnerable.

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Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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