January 8, 2021

The nation suffered a net decline in jobs for the first time since the spring, with employment in low-wage industries particularly hard-hit. Strong spending on residential construction in November should give home builders momentum headed into 2021. And the prospect of full Democratic control of the federal government in the wake of results from Georgia’s runoff Senate elections helped push mortgage rates up.

The labor market declined in December for the first time since the spring

• The U.S. lost 140,000 jobs in December from November, the first monthly decline since April.
• The unemployment rate held steady at 6.7%, but heavy losses were suffered in industries already devastated by the pandemic.

Spending on home construction continues to grow strongly

• Private residential construction spending increased 16.1% year-over-year in November, the strongest annual gain since 2017.
• The price of framing lumber is up more than 100% year-over-year.

The results of Georgia’s two senate runoff elections helped push mortgage rates higher

• Mortgage rates rose to their highest levels in more than a month.
• Participation in mortgage forbearance programs held flat last week.

So what? 

The disappointing December jobs figures were a clear indication of the impact the recent surge in COVID-19 cases is having on the economy. The pace of hiring slowed each month since June, but December’s net job loss was the first monthly decline since April. The leisure and hospitality sector — already decimated by Coronavirus-related unemployment — shed almost half a million jobs in December alone, most of which came (372,000) from the restaurant sector. All told, there are 23% fewer jobs in the leisure and hospitality sector than there were in February, and that gap is trending in the wrong direction. The losses also underscore a broader trend that has persisted for months and only worsened in December: Low-wage industries are bearing the brunt of employment losses during the pandemic. According to the Census Bureau, 0.9% of jobs in lower-paying occupations were lost in December alone, while middle-wage and higher-wage industries added 0.5% and 0.3% more jobs, respectively. And there are still 12% fewer jobs now in lower-income roles than there were in February. The share of working-aged people who are in the workforce – either working or actively looking for a job – was flat in December and remains well below pre-pandemic levels. While the fact that participation held firm even as job losses mounted, this stagnation — and the risk that many of these workers might fail to re-enter the workforce even once it starts to improve — presents longer-term challenges for the economy overall.

One bright spot in the otherwise dismal employment picture for December was continued growth in hiring in the construction industry. Recently released residential construction spending data for November reinforced the fact that home builders remain bullish heading into the new year. As has been the case for many months now, spending on the construction of private residences drove the overall monthly growth in total construction spending – rising 16.1% from November 2019. It’s likely that spending will continue to grow in the months ahead, if only because materials prices keep rising — especially lumber prices. After spiking and then falling back off again in September, the price of framing lumber has skyrocketed again in recent weeks, growing about 40% from the beginning of December to a new record more than double where it was a year ago. Such a swift surge in prices may present a headwind for homebuilders going forward, although it also indicates that demand for building materials has increased significantly of late.

The preliminary results of the two Georgia Senate runoff elections, which gave the Democratic Party a majority in the upper chamber and control of all three branches of government, surprised many and helped push Treasury yields to their highest levels since the spring. The sharp uptick in bond yields helped mortgage interest rates, in turn, reach their highest levels in more than a month. The swift increase in rates was jarring, but the path forward for mortgage rates remains uncertain and largely dependent on the economy’s ability to improve. Rates remain very low by historic standards and should be kept in check by aggressive monetary policy measures which appear unlikely to stop anytime soon. Participation in mortgage forbearance programs remained flat in the last week of 2020, though recent increases in the share of Ginnie Mae loans seeking assistance suggests that rising COVID-19 case counts may be impacting some lower-income borrowers’ ability to keep up with their payments. The recently-passed fiscal relief package should offer some support to these and other households.

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