January 2021 National Economic Outlook

Executive Summary

The U.S. economy lost 140,000 jobs in December, according to a survey of employers, the first month of net job losses since April.

• The decline was driven by enormous job losses of almost 500,000 in the leisure/hospitality industry, mostly restaurants, tied to surging coronavirus cases and additional government restrictions.
• The private sector lost 95,000 jobs over the month, while government employment fell by 45,000.
• Employment in December was 8.5 million, or 6%, below its pre-recession peak in February.

The unemployment rate held steady at 6.7% in December; it had fallen in every month from May to November.

• The unemployment rate jumped from 3.5% in February to a record high of 14.8% in April (revised). Although it has fallen steadily since then, it remains elevated.
• The unemployment rate also understates the extent of unemployment in the U.S. right now.
• About 4 million people have dropped out of the labor force since the pandemic; presumably many of them would like to be working.

In its December 16 monetary policy statement, the Federal Open Market Committee said that it will continue to purchase long-term securities “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

This language on tying purchases to labor market and inflation outcomes was new; in its previous statement on November 5 the FOMC said that it would purchase long-term securities (Treasurys and Fannie Mae and Freddie Mac mortgage-backed securities) to support credit flows to households and businesses, with no mention of progress toward the FOMC’s goals.

These purchases help push down long-term interest rates, keeping borrowing costs low for businesses, homebuyers, and consumers, encouraging economic growth.

Retail sales fell 0.7% in December from November, the third straight monthly decline.

Sales plunged in March and April as consumers stayed home and stores closed during the first wave of the pandemic, then rebounded strongly in the late spring and summer as consumers ventured out again and spent some of their stimulus funds, and stores reopened.

But sales fell in each of the last three months of the year due to continued high unemployment, record-high coronavirus caseloads, and the reimposition of some restrictions on economic activity.

Even with the recent decline, retail sales are still well above their lows in the early spring, and in fact are up from before the pandemic.

Our economics team is consistently analyzing and forecasting national, regional and global economic trends.

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