According to ADP; Democratic Sweep in Georgia Could Support Near-Term Growth

Private-sector employment fell by 123,000 in December, according to data from payroll-processing firm ADP. The Bureau of Labor Statistics releases the government’s official employment report for December on Friday, January 8.

This was the first drop in private-sector employment since April, according to ADP. Employment declined in both goods-producing industries, down by 18,000, and in services-providing industries, down by 105,000. Employment fell by 58,000 in leisure/hospitality services and by 50,000 in trade, transportation, and utilities; these industries are especially vulnerable to consumers staying at home and government restrictions from the pandemic.

Employment at firms with fewer than 50 workers fell by 13,000 in December, but rose by 37,000 at firms with 50 to 499 workers. Employment at the largest firms fell by 147,000 over the month.

PNC expects very weak job growth of 40,000 in December in the BLS report, including an increase in employment of 50,000 in the private sector. The ADP employment numbers have not been good predictors of the BLS numbers in 2020, as the pandemic has caused huge swings in jobs. But the December jobs number from the BLS is likely to be weak, and could be negative.

Record-high coronavirus cases at the end of 2020 led consumers to stay at home and governments to place more restrictions on businesses, weighing on industries like retailing, hotels, and transportation. The labor market will stay weak in early 2021, but job growth will pick up in the spring as more people receive vaccines, consumers feel more comfortable venturing out, and governments allow more business activity. The recently passed stimulus bill will support consumer spending over the next few months, and very low interest rates will encourage household and business borrowing.

Wednesday morning results from the Georgia U.S. Senate run-off election show that the Democrats could control the Senate in 2021. If so, this would result in a 50-50 split, allowing Vice President-elect Kamala Harris to break any ties. If Democrats do control the Senate, Congress is much more likely to pass another big stimulus bill early this year, providing more aid to households, businesses, and state and local governments.

A big stimulus package would support a faster economic recovery in 2021. The negative consequences of another big stimulus package are low. With borrowing costs extremely low-the federal government can borrow for 10 years at an annual interest rate of less than 1%–it makes sense for the federal government to borrow now to support the recovery, which would make it easier to deal with the nation’s long-run fiscal concerns.

In addition, there is little risk of out-of-control inflation. Inflation has been below the Federal Reserve’s 2% objective for years and slowed in 2020 as demand for many services and goods faltered because of the pandemic. Many businesses are finding it difficult to raise prices given continued weak demand and excess capacity in many parts of the economy.

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