Private Payrolls Drop for First Time Since April

Young man barista with face mask and gloves standing in coffee shop, disinfecting tables
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The number of people on private payrolls unexpectedly dropped in December for the first time since April, reinforcing fears about the trajectory of the tenuous economic recovery ahead of Friday’s widely watched unemployment report from the government.

The private sector lost 123,000 jobs last month, according to ADP’s national employment report Wednesday, far worse than the 87,500 gain expected from economists polled by Moody’s Analytics.

The unexpected decline doesn’t bode well for Friday’s Bureau of Labor Statistics (BLS) report on total nonfarm payrolls, which are forecast to rise 100,000, according to the consensus estimate of economists polled by Moody’s. (Moody’s itself expects a decline of 25,000.) The ADP report is often relied on as somewhat of a predictor for what the BLS report will show, though it doesn’t reflect government payrolls and is estimated differently. 

Economists such as Dante DeAntonio of Moody’s say the country is struggling to avoid sliding into a double-dip recession amid surging COVID-19 cases and restricted activity in the winter weather. The economy has yet to recover almost 10 million jobs lost in the pandemic.

“The labor market recovery took a step back to end the year as job losses reemerged,” DeAntonio wrote in a commentary Wednesday. 

Most of the job losses in December were in the service sector, led by a 58,000 slump in leisure and hospitality and a 50,000 decline in trade, transportation, and utilities, the ADP report showed. Large companies with 500 or more employees cut the most jobs, shedding 147,000 workers in December, while small businesses saw a decline of 13,000. Medium businesses saw a gain of 37,000 in December, according to ADP.

The ADP survey “showed the negative impact of the second wave of COVID on the labor market in the U.S. in the final month of the year,” CIBC economist Katherine Judge said in a commentary. In fact, it suggests Friday’s BLS unemployment report could even miss her forecast for a 20,000 decline in overall nonfarm payrolls, she said.

In the week through Jan. 2, the number of initial jobless claims was barely changed, falling 3,000 to 787,000 on a seasonally adjusted basis, a separate government report showed Thursday.

Moody’s DeAntonio said he expects the additional fiscal stimulus passed by Congress at the end of 2020 to help the economic recovery until vaccine distribution is able to better control the virus. Small businesses should also benefit from renewed funding for the Paycheck Protection Program, he said.

BMO economists noted in a research report to be careful of relying on ADP reports too much because recent ones “have been subject to significant revisions and missed the mark on predicting payrolls.”