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Economic & Housing Weekly Note

Payroll Employment Falls for the First Time Since April

January 8, 2021

Key Takeaways:

  • Nonfarm payroll employment fell by 140,000 in December, the first decline since April, according to the Bureau of Labor Statistics. Total nonfarm employment remained approximately 6.5 percent below the level seen at the peak in February. Leisure and hospitality employment fell by 498,000, also the first decline since April as new restrictions were put in place to try to limit the current spread of COVID-19. However, this decline was partially offset by strong gains in retail trade, professional and business services, and construction. Residential construction employment (including specialty trade contractors) rose 22,700, increasing above the level seen in February. The unemployment rate was unchanged at 6.7 percent.
  • Light vehicle sales rose 3.1 percent in December to a seasonally adjusted annualized rate (SAAR) of 16.38 million, according to Autodata. From a year ago, light vehicle sales fell 4.3 percent, the tenth straight month of annual declines.
  • The ISM Manufacturing Index increased 3.2 points in December to 60.7, the highest reading since August 2018. The new orders and production indices both increased, with the former tying the highest level since January 2004. The employment index averaged 51.0 in Q4, above the expansionary threshold for the first time in in over a year. The ISM Service Index also increased in December, rising 1.3 points to 57.2, the largest increase since June. Both the business activity and new orders components increased; however, the employment index fell sharply by 3.3 points to 48.2, the largest decline since April. Any reading above 50 indicates expansion, while readings below indicate contraction.
  • The real goods trade deficit (an input into the calculation of net exports) widened by approximately $6.7 billion to $96.5 billion in November, according to the Census Bureau. This represented the widest deficit since the series began in 1994. Exports rose just 0.5 percent while imports jumped 3.2 percent. Real exports remained around 4.7 percent below the recent peak in February.
  • Factory orders and shipments rose 1.0 percent and 0.7 percent, respectively, in November, according to the Census Bureau. Nondurable goods orders increased 1.1 percent, though they remained well below early-2020 levels. Both core capital goods orders and shipments rose 0.5 percent.
  • Private residential construction spending grew 2.7 percent in November, according to the Census Bureau. The increase was driven almost entirely by new single-family construction spending, which rose 5.1 percent to the highest level since January 2007. New multifamily construction spending was essentially unchanged.
Forecast Impact:

This morning’s jobs report showed the effects of the recent resurgence of the COVID-19 pandemic, as the renewal of many restrictions in bars and restaurants led to a sharp decline in leisure and hospitality employment. We believe these layoffs and restrictions could lead to a further slowdown in consumption in Q1 2021, particularly if stricter measures are put in place, given the recent trend of daily record increases in new COVID-19 cases. However, other economic measures were not as pessimistic. Light vehicle sales in December increased, and the service sector continued to expand, suggesting some upside for consumer spending in Q4 2020 despite the decline in employment. The manufacturing sector has almost fully recovered from the lows seen in April and May, and the increase in core capital goods orders, as well as the continued expansion in the manufacturing sector suggest that we may need to increase our outlook for business investment in Q4 2020 and potentially in early 2021. However, we expect the record real goods trade deficit will almost certainly weigh on GDP growth in Q4 2020. For housing, the strength in November single-family construction spending supports our expectation of significant residential investment in Q4 2020, which will also likely be further bolstered in the coming months by the continued increase in residential construction employment.

Ricky Goyette
Economic and Strategic Research Group
January 8, 2021

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.