The leisure and hospitality sector has steadily recovered since taking the brunt of pandemic job losses. But it remains a complicated facet of the labor market recovery as COVID-19 continues to dictate the industry’s future.

Hiring in leisure and hospitality rose by 53,000 new workers in December to help the broader U.S. economy add 199,000 jobs during the month, continuing the sector's upward trend even amid a disappointing read on the Labor Department’s latest employment figures. Still, leisure and hospitality remains the area with the largest shortfall from pre-COVID employment levels.

Despite posting another monthly increase, the sector — which comprises a broader array of businesses including hotels, restaurants and bars, and tourism — is still down by about 1.2 million, or 7.2%, since February 2020.

“The biggest reason why leisure and hospitality has been slow to add jobs back is the reason that it’s had so much job loss — the pandemic,” Nick Bunker, an economist at Indeed, told Yahoo Finance. “Many of the industries in the sector are strongly affected by the pandemic and also have shifted their outlook for the next few years.”

The turnout at bars, restaurants and hotels continues to be driven by people’s willingness to go into crowds and travel to new places, which remains stunted by rising case numbers and uncertainty around the virus, according to Bunker.

“There is also the fact that there might be some broader shifts in the economy that could lead to lower demand for their services,” he said. “In a world in which there is lots of remote work, there is going to be less demand for business travel, which could hit central business district restaurants and bars.”

Economists suggest January’s report next month may even reflect more pronounced impacts from the latest Omicron-driven COVID wave as case counts continue to rise.

“Omicron might well weigh on job gains in the next couple of months if the labor intensive leisure and transport sector suffer a setback in the pace of re-opening,” Fitch Ratings’ chief economist Brian Coulton wrote in note. “This would mean it could be several months before we get to ‘maximum’ employment.”

Demand for workers is at a historic high, but labor shortages continue to weigh on businesses struggling to find employees as many Americans stay on the sidelines due to factors that include caretaking needs and virus fears.

The labor market recorded a twelfth consecutive month of job growth in December, even with gains at nearly half the 400,000 economists expected. The latest figure also marks the second-consecutive month of lackluster growth following November, which saw an upwardly revised 249,000 jobs created compared to 648,000 in October.

For the leisure and hospitality industry, the outlook for the rest of the year will depend on what happens on the public health front, according to Bunker.

“If the public health situation is under control and people feel more comfortable returning to their pre-pandemic willingness to engage in some of these activities, then we will start to see a more sustained recovery for the sector,” he said.

Although, even if the pandemic winds down, new behaviors established throughout the period may also influence that recovery.

“The question is — not only is there people’s risk tolerance when it comes to engaging in some of these activities, but there may also be a shift in preferences,” he added. “Maybe people have adopted new ways of eating out and use more take-home and delivery options, or maybe people have started to like cooking at home more.”

“That means that even when the pandemic is behind us, we might not see the same outlook for this sector that we’ve seen before the pandemic,” Bunker said.

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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