The estimated loss of 140K jobs in December interrupted a streak of consecutive monthly gains that started back in May. The market had a muted response and finished the day (January 8th) up about 0.6%. At first, the reaction was a bit surprising, but it makes sense upon closer analysis. Almost all the loss was concentrated in one sub-sector- Leisure and Hospitality.

As the accompanying chart shows, the employment report breaks the number of jobs gained or lost down by sector and sub-sector. The first breakout is Private vs. Government. The December report estimated a loss of 95K in the Private sector and a loss of 45K in the Government sector. The Government number has been negative since September and its loss is partially tied to the conclusion of the 2020 census. Thus, the continued small loss in Government jobs was not much cause for concern. The 95K Private loss was surprising and a huge reversal from the 417K Private gain in November, which was much lower than the 925K gain from October.

The Private sector number is divided into Goods-Producing vs Service-Providing sectors. The Goods-Producing (mainly construction and manufacturing) number was a gain of 93K- the average of the trailing 3 months. The Service-Providing sector was weak, posting a decline of 188K jobs. In addition to Leisure and Hospitality, the sector is broken into 6 other sub-sectors, such as Trade, Transportation and Utilities, Professional and Business Services, and Education and Health Services. The Trade, Transportation and Utilities sub-sector was up 191K and Professional and Business Services increased 161K. Education and Health Services was down 31K as a 32K gain in Health Services was more than offset by a 63K loss in Education.

Leisure and Hospitality was down 498K, accounting for essentially all the Private sector loss. As COVID cases surged post-Thanksgiving, many states imposed new restrictions. As a result, hotels and restaurants had to shut down or at least cut back. Of the 498K loss, 372K were considered food services and drinking places.

The report highlights that parts of the economy are not going to get back to full employment until we are able to completely re-open when the vaccine becomes widely distributed. The economy has lost about 10M jobs since February, 2020 and almost 4 million of those are in the Leisure and Hospitality sub-sector. The good news is this sub-sector has shown the ability to bounce back quickly. Eight million jobs were lost in the sub-sector in March and April, but 3.4M were added over the next 2 months.

This connection points to the possibility of a quick rebound in this sub-sector and the economy as a whole as restrictions ease and re-opening takes hold. As of now, this is largely priced into the market. Until that time, the monthly jobs report should be analyzed beyond the headline number to monitor which sectors and sub-sectors are gaining or losing jobs. Job losses spreading beyond Leisure and Hospitality could point towards further trouble, while gains point toward further recovery.