The US economy stumbled towards the finish line at the end of 2020, with the recovery from the coronavirus pandemic slowing, putting it at risk of losing jobs for the first time since the pandemic erupted in the spring latest.
Wall Street predicts a slight increase in job creation in December when the government releases its final monthly employment report for 2020 next Friday. But economists’ forecasts are omnipresent: estimates range from a modest gain of 200,000 jobs to a drop of 175,000 which would mark the first drop in seven months.
See: MarketWatch Economic Calendar
Adding to the confusion: a potentially significant disruption in normal hiring patterns around the holiday season.
Some companies such as retailers have added fewer workers to stores than usual, while transportation companies like UPS UPS,
and AMZN from Amazon,
the delivery service has added more staff to deliver the packages.
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Unless there is a surprisingly large increase in hires, the outcome is unlikely to matter much to financial markets. Inventories have increased in anticipation of greater availability of Covid-19 vaccines, spurring economic growth as 2021 unfolds.
Yet the details of the December jobs report will underscore how far the United States must go. The economy has recovered just over half of the 22 million jobs destroyed in the first two months of the pandemic, and hiring has fallen sharply in the final months of 2020.
Even the surprising drop in the unemployment rate to 6.7% – from a pandemic peak of 14.7% – underestimates the recovery in the labor market.
The actual level of unemployment is probably several points higher, economists say, and that doesn’t even include some 4 million people who have dropped out of the labor force and are no longer included in the official unemployment rate.
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The most critical segments of the economy to watch are retail, leisure, and hospitality and entertainment.
Businesses such as restaurants, hotels and theaters have again fallen victim to government restrictions on hours of operation and the number of customers allowed on the premises. They suffered most of the damage in the spring and do so again in the winter.
“Activity in restaurants across the country has fallen sharply [in December] as many states have restricted indoor dining, ”said Lewis Alexander, chief US economist at Nomura Securities.
The damage will likely last for at least a few months. Even though the vaccines are working as promised, the initial rollout was slower than expected and it will take several months to immunize most of the population.
Small businesses and those that deal directly with customers are likely to struggle until the pandemic subsides, forcing them to lay off workers or maintain the line when new hires are made.
Although the December jobs report is the main event, the first week of January will bring a flood of economic reports.
Wall Street will pay close attention next week to weekly jobless claims and a pair of ISM business surveys that will shed some light on just how badly the economy deteriorated in December.
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After a brief hiatus, the Federal Reserve will also take center stage again. An army of senior central bank executives will set out their views on the economy in the coming months in a series of public appearances.
The minutes from Wednesday’s December Fed meeting will also shed more light on how the central bank plans to support the economy in 2021.