Greetings, and welcome to the ADP National Employment Report Media Conference Call. As a reminder, this conference is being recorded Wednesday, January 6th, 2021. I would now like to turn the conference over to Joanna DiNizio with ADP. Please go ahead. Good morning, and welcome to the December 2020 ADP National Employment Report Media Conference Call. With us is Mark Zandi, Chief Economist at Moody's Analytics, who will share his thoughts on the December findings. Following the call, we will take your questions by email, which may be directed to Joanna DiNizio at J-O-A-N-N-A dot D-I-N-I-Z-I-O @adp. com. Thank you, Joanna. Good morning, everyone. Thank you for joining the call. The obvious clear message from the ADP report is that the economy is struggling to avoid backsliding into recession. The intensifying pandemic, more infections, hospitalizations, deaths since the fall is doing significant damage to the job market. You can see that by the job declines of retailers and restaurants, accommodation industry, personal and recreational services. These are industries that have been forced to resume laying off workers. Even other industries have turned a bit more cautious in their hiring. The economy ended 2020 on a very soft note. After a number of months of job gains, disconcerting to see the job loss in December. Based on the ADP results, I would expect the Bureau of Labor Statistics to report a decline in December employment of close to 100,000 jobs when it reports on Friday. That would imply no change in government employment. As you know, the ADP number measures private sector jobs, excludes government. I would expect basically flat government employment. The net of all that is about 100,000 job loss in the month of December. That decline, that's roughly consistent, I think, with other data. Difficult to interpret the unemployment insurance data given measurement issues, fraud, other timing issues. It does appear that the UI claims have stopped improving over the past four, six weeks. Initial claims have stabilized north of a million per week, which obviously is indicative of a very soft economy, a struggling economy. Continuing claims have settled in somewhere around 20 million. You would think that that would be declining because, all else being equal, because a number of people have been unemployed for so long, they're running out of benefits and falling off the rolls. Despite that, continuing claims have held steady. That would be consistent with a very soft job market. Other third-party data, and there's been an explosion of other third-party data since the pandemic hit, which has been very helpful. That all indicates continued softness in the labor market as well, consistent with the ADP number. If we do see a decline in December, as I would anticipate, that means that the economy is still down 10 million jobs, almost on the nose from its pre-pandemic peak. You may recall in March, April, the economy lost 22 million jobs. We've gotten 12 million back. We're still down about 10. I think we may also see a tick up in the unemployment rate. Unemployment has been coming down. We're now, as of November, 6.7% nationwide. Clearly, with a decline in employment, that would be consistent with at best a stable unemployment rate and potentially an increase back closer to 7%. The decline in jobs, and of course, we saw weakness in November as well, just a small gain. The decline in December does feel a bit incongruous with what looks like will be another strong gain in GDP for the fourth quarter. The tracking estimate for Q4 GDP is at least 5% annualized. That would not be consistent with, in typical times, job loss. There are two ways to square that circle. The first is a big part of the GDP gain in Q4 will likely be inventory. Manufacturers have ramped things up and outpaced demand. As you know, inventories were drawn down dramatically during the pandemic. There's a lot of inventory building that needs to get done. It looks like a fair share of that happened in Q4. That, say 5% GDP gain, at least half of that is in inventories. That's manufacturing. That's obviously very highly productive industries. You don't get a whole lot of jobs there. You get a lot of output, not a whole lot of jobs. That gets to the second way to square the circle. That is we have seen much stronger productivity growth in the last few months since the economy's recovered from the pandemic. That reflects some compositional issues. I mentioned manufacturing, there's other compositional issues. The pandemic has hit lower value-added jobs hard: leisure, hospitality, retail, and recreational activities. Those are all relatively lower-productivity industries, and it's helped to lift the industries that are more of higher value-added, more productive technology, financial services, professional services comes to mind relatively quickly. Also, there's evidence that businesses have used the crisis, in part out of necessity, but in part out of just good timing to take advantage of big investments that were made back in the expansion prior to the pandemic that businesses had not fully incorporated those new technologies, processes, equipment, and other labor-saving activities into their business practices fully, and they've used the crisis to do that. An open question, very important open question, is whether this productivity increase is just a one-time shift, which is what happened during the financial crisis. There was a similar jump in productivity coming out of the financial crisis back over a decade ago. After that, we settled back into slower productivity gains on a consistent basis. We'll have to see what happens here. There is some potential that we could see stronger underlying rates of growth and productivity going forward post-pandemic. Work from anywhere would be an example of something that might lift underlying productivity growth going forward. We'll have to see how that goes. That's a very important dynamic, obviously, for the broader macro economy, but very clearly for the job market. While the economy's on the verge of double-dipping, going into another recession, again, that's the clear message in today's ADP numbers, I don't think it will. That's because lawmakers did come through. Congress, the administration, signed the $900 billion fiscal relief legislation, a long-debated piece of fiscal support. That brings total fiscal support to the economy since the pandemic hit of $3.4 trillion. That's about 15% of GDP. That's very substantive. There's only one other country on the planet that's provided more support, and that's Japan, and only by a couple of basis points. 15% is a massive amount of support, and that has obviously been key to keeping the economy together as well as it's been kept together. I do think that $900 billion will be helpful and ensure that the economy does not actually backslide into a recession. Most importantly, most immediately, the package provides more unemployment insurance, which was due to run out at the end of the year. Another round of stimulus checks, $600 per person. A lot of debate around whether that should be $2,000 or not, but we're at $600. Both those things will add significantly to income very quickly. In fact, I have three kids, all three of them just got checks in the mail yesterday. That money's getting out pretty quickly. Rental assistance, and also in terms of the job market, very important, the additional funding for the Paycheck Protection Program to get money out to those small businesses in those industries I mentioned earlier that are getting nailed. That should help to mitigate the job loss and keep the economy from going back into a recession. Obviously, with last night's Georgia Senate results, if they hold up, that means the Democrats will control the federal government, and that would likely mean even more fiscal support is coming. The $2,000 check now seems like an increasingly likely likelihood. There will be, in all likelihood, another fiscal support package, stimulus package later in the year, which will provide a lot of growth. You can see markets already anticipating a stronger growth. The 10-year Treasury yields jumped back over 1% this morning. That's a clear sign that investors believe that there's a much higher probability of getting more fiscal support to the economy, which means stronger growth, means getting back to full employment faster, and that drives up long-term interest rates. Obviously, the additional good news on the vaccines, I mean, the slow rollout, obviously very disconcerting, disappointing, but I think good reason to believe that'll ramp up pretty quickly over the next few weeks, couple of months. The consensus view, and I think it's right, is that at least half the American population will be vaccinated by mid-year. At that point, we're close enough to herd immunity that I think the economy is off and running. The economy will be on the soft side over the next several months. The damage from the re-intensification of the pandemic is significant and serious but given the fiscal support that we've gotten and the likelihood of additional support in the near future, and the vaccines, I do think the economy is going to be kicking into a very strong gear by summer. The second half of 2021 should be much better than the first half of, well, certainly, 2020 and the first part of 2021. Finally, let me end by saying that despite all that optimism, and I think good reasons to be optimistic, it's going to take a long time to get those 10 million jobs back. The 10 million we're down pre-pandemic. We may get half of them back pretty quickly once we feel like we're free and clear of the pandemic. Restaurants will reopen. Tourism will pick up. Business travel will take a little bit of time, but that'll start to pick up as well. People will start doing stuff that they haven't been doing, and a lot of pent-up demand out there for various types of consumer services. We'll get about half those jobs back pretty quickly in the second half of 2021 and first half of 2022. I think the next 5 million will be more difficult. Not all of the jobs that we've lost here are coming back. There has been a lot of business failure, and business models have changed significantly. There's no going back on those productivity gains. I do think it's going to take some time. How much time? Depends on lawmakers and what kind of fiscal support they provide later in the year, that I would anticipate. I don't think we get back those 10 million jobs. We don't get back to full employment. We don't get back to an economy that's at full swing for probably two- three years. This is going to be a bit of a slog. It's going to take some time. With that, I'll end and thank everyone for attending the call, and happy to answer any questions. Please direct them to Joanna, and I'll respond if you have any questions very quickly. Thank you, and have a great day. Thank you, Mark. Thank you everyone for joining us this month. As a reminder, your questions may be emailed to joanna.dinizio@adp.com. The call is now concluded. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.