Finance

Five takeaways on a stunning jobs report

Rarely have so many economists been so glad to be so wrong about the jobs report.

The U.S. economy added 467,000 jobs in January and the unemployment rate budged little at 4 percent, according to the Labor Department, despite widespread fears of an omicron-driven employment wipeout.

While most economists expected the U.S. to lose jobs amid a record-breaking surge of COVID-19 cases, the January jobs report showed just how resilient the recovery has been — and for far longer than it seemed.

Here are five key takeaways from a stunning January jobs report.

Job growth held up against omicron

The wave of infections wrought by the omicron variant seemed certain to wipe out job gains in January. Roughly 6 million Americans missed work because their employer closed or lost business due to COVID-19, according to the Labor Department, and another 3.6 million missed work because they were sick.

Several private sector gauges of job growth and activity signaled sharp declines in January as cases spiked last month and consumers pulled back from dining out, entertainment and travel. Even so, the momentum of the recovery and the intense need for workers helped the labor market power through the new wave of the pandemic.

“The underlying strength of the labor market has been underappreciated the past few months. The data has been sending conflicting signals and normal seasonal patterns of hiring have been off and those factors outweigh any negatives from omicron,” said Adam Ozimek, chief economist at Upwork, in a Friday interview. He projected the U.S. to have gained 400,000 jobs last month.

“The economic effects of the pandemic have gotten weaker with every wave and I think for vaccinated people, they were able to continue going on with their lives,” he continued.

The labor market has been stronger than it seemed

While January job growth was remarkable, major upward revisions to November and December’s employment gains are more significant to the overall picture of the economy.

The Labor Department revised the November gain of 249,000 jobs up to 647,000 and December’s meager gain of 199,000 jobs up to 510,000 — a total of 709,000 more jobs than previously reported. 

Both the November and December jobs reports showed the economy gaining far fewer jobs than expected, but with the unemployment rate falling, labor force participation holding steady and wages rising faster than would be expected with low employment growth.

“Those revisions took the mystery out of the sudden slowdown in job growth when most other factors pointed to strong growth as the Delta wave disappeared. The mystery is there was no mystery, just faulty counting,” wrote Robert Frick, corporate economist at Navy Federal Credit Union, in a Friday analysis.

The Labor Department uses two surveys to compile the jobs report: one of employers to calculate how many workers have been added to payrolls and one of households to assess how Americans are faring in the workforce. Low survey response rates and delayed returns driven by the pandemic have led to significant revisions to previous reports.

Demand for workers is breaking seasonal hiring patterns

The strong January jobs gain may have been boosted by the pandemic disrupting the normal seasonal churn of the workforce. 

The Labor Department adjusts the jobs report to exclude thousands of workers typically hired for seasonal jobs in November and December and laid off in January. But with workers in short supply, businesses have been reluctant to lay off staff and could be holding onto employees initially counted as seasonal hires — and thus excluded from November and December’s job gains.

“Much of the ‘strength’ was due to the fact that fewer holiday hires were let go in January. The usual layoffs in the retail and food services sector fell well short of historic norms. Acute labor shortages, exacerbated by a surge in the number of people out sick, prompted employers to keep holiday hires on longer in January,” wrote Diane Swonk, chief economist at Grant Thornton, in a Friday analysis.

Biden catches a break — for now

The stellar January jobs report is likely a relief for President Biden and Democratic lawmakers as they attempt to sell the strength of the economy with less than a year until the midterm elections. 

Despite the economy adding more than 6 million jobs and growing 5.7 percent in 2021, high inflation and the resurgent pandemic have tanked Biden’s approval ratings and voters’ views on his handling of the economy.

“I know that after almost two years, the physical and emotional weight of the pandemic has been incredibly difficult to bear for so many people. But here’s the good news: We have the tools to save lives and to keep businesses open and keep schools open, keep workers on the job and sustain this historic economic comeback,” Biden said in Friday remarks at the White House.

But Biden also noted the strain of rising prices on many American households with an eye toward the release of new January inflation figures from the Labor Department’s consumer price index (CPI) next week.

“Average people are getting clobbered by the cost of everything,” Biden said.

Fed rate hikes are full steam ahead

The Federal Reserve was already well on its way to hiking interest rates in March after a year of inflation rising well above its 2 percent annual target and the unemployment rate within striking distance of pre-pandemic levels. The strong jobs numbers in January’s report, along with the 5.7 percent annual increase in wages, has cleared the path for the Fed to pull back faster.

“Much will depend on the CPI data between now and March, which is expected to remain hot, despite some cooling in the service sector in January,” Swonk wrote, adding she expects the Fed to hike five times this year.

But Ozimek warned against the Fed acting to cool the recovery over concerns the labor market might be permanently smaller after the pandemic.

“The most important lesson is to not underestimate labor supply. People are coming back to work, they’re going to continue to come back to work, and we shouldn’t count people out of the recovery and base policy on the assumption that a lot of people simply aren’t going to work anymore,” he said. 

Tags Jobs Joe Biden Unemployment
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