The differences in strength between the stock market and real economy were laid bare this week as the stock market surged to new highs while the jobs market continued to deteriorate and remains well short of its February peak.
The US Bureau of Labor Statistics released its monthly employment report on January 8, revealing that the domestic economy lost 140,000 jobs in December, falling well short of Bloomberg-surveyed economists’ forecasts for a 50,000 gain. It should be noted, though, that strong revisions to prior months—adding 135,000 jobs—somewhat offset December’s shortfall. Both the unemployment rate and labor force participation rate held steady at 6.7% and 61.5%, respectively. Average hourly earnings rose 0.8% month over month and 5.1% year over year, signaling lower-wage workers again bore the brunt of job losses.
As seen in the LPL Chart of the Day, December’s jobs loss represents the first return to negative territory since the jobs market began recovering from the April 2020 plunge. Compounding the negative monthly change, total payroll growth is stalling out 9.7 million below February’s peak of 152.5 million nonfarm payrolls. Only 56% of the jobs lost in March and April 2020 have been recovered.
The composition of December’s report follows trends observed around prior COVID-19 spikes, namely a divergence between goods-producing jobs and service-providing jobs. In an environment where consumers can still shop for goods from home, goods-producing jobs remained strong, adding 93,000 net jobs, with manufacturing a bright spot. Service-providing jobs lost 188,000 net jobs, with leisure and hospitality accounting for 498,000 job losses, a staggering number driven by declining in-person interaction and renewed shutdowns.
“The disappointing jobs number confirms what we know: The employment picture continues to weaken as new restrictions are put in place and COVID-19 cases soar,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The good news is with the recent stimulus package—and more likely on the way soon—we can help those that need it the most until a broader rollout of the vaccine can be implemented.”
While December’s bridge stimulus package did some of the work of getting timely support to those most affected, the Democrats’ somewhat surprising capture of Senate control may lead to another big stimulus package. While hardly a substitute for a self-sustaining economy, a large fiscal package on the horizon may help shore up confidence that the economy will make it through this difficult period with little additional lasting damage. Investors, at least initially, have been cheering these developments, pushing stocks to all-time highs. We remain focused on whether the real economy can take the baton from policymakers and justify the stock market’s optimism as we move through 2021.
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