January jobs report may show omicron caused sharp drop in payrolls

A “hiring in progress” sign is displayed in the window of a restaurant in Los Angeles, California, January 28, 2022.

Frederic J. Brown | AFP | Getty Images

The sudden slam of the economy by the omicron Covid variant could appear in the January jobs report as the first major job loss since late 2020.

Economists have high expectations for the report, which is due Friday at 8:30 a.m. ET. Economists polled by Dow Jones are calling for a 150,000 gain in payrolls. However, many economists – like those at PNC, Jefferies, Morgan Stanley, Goldman Sachs and Wilmington Trust – expect big losses.

“There’s no question it’s omicron. It’s a pandemic, and it’s not without consequences,” said Diane Swonk, chief economist at Grant Thornton. She noted that the number of jobs lost could be particularly high because many workers do not get paid sick leave and if they report being sick, they are not counted as working.

PNC projects the most job losses at 400,000. Other forecasts include a gain of up to 250,000 jobs. The last time the monthly jobs report was negative was in December 2020, when it was down 306,000 and parts of the economy were still shuttered.

According to Dow Jones, economists expect the employment rate to remain the same at 3.9%. They forecast a gain in the average hourly wage of 0.5% on a monthly basis, or a 5.2% increase year over year. This compares to a monthly increase of 0.6%, or about 4.7% on an annualized basis, in December.

The ‘omicron fog’

Swonk said she expects flat to negative job numbers, and she said job losses could easily be in the hundreds of thousands.

“It’s omicron fog. You can’t see through it,” she said. Swonk expects some recovery in February and a rebound in March. She noted that jobless claims are falling again after a sudden increase in January.

Tom Simons, money market economist at Jefferies, expects a loss of 200,000 jobs.

“I think the market has already priced that in at this point. There could be some initial volatility,” he said.
“But it’s like one of those days where half an hour after the pay slips are printed, the market goes flat again…it’s one of those things where the stakes aren’t particularly high because everyone everyone understands why the data is weird.”

For the Federal Reserve, the report should confirm the labor market’s rapid negative reaction to omicron, and that’s no surprise. It’s also likely to have no impact on Fed policy or interest rate hikes since omicron’s effects are expected to be short-lived.

Swonk said the Bureau of Labor Statistics has struggled to report on the impact of the pandemic on the workforce. He initially underestimated the job losses in 2020, then later didn’t add them fast enough.

In an unusual step, the White House has already warned that the number of salaries could be low. During a briefing at the White House this week, press secretary Jen Psaki pointed out that nearly 9 million people called in sick in early January when the jobs data was collected. The survey was carried out in the week of January 12, at the height of the omicron peak.

Downward revisions to forecasts

Private sector data from ADP, released Wednesday, showed a loss of 301,000 jobs in January, far more than expected. This made some Wall Street economists more negative.

Morgan Stanley economists said on Thursday they had revised their forecast down to a drop of 215,000 jobs, in part due to comments from Fed and White House officials suggesting the data could be weaker than expected. .

“Omicron took a bigger than expected share of the job market in January with sick workers and suspended hiring plans. We expect a net payroll loss of 215,000, but strong household survey gains should help the Fed peek through the stock as a single piece,” they wrote.

Wilmington Trust chief economist Luke Tilley said the jobs data may not be reliable in other respects, but he will monitor the impact on labor market participation, which only climb slowly.

Look at hourly wages

The average hourly wage is an important measure watched by the markets for its signal on inflation. But Tilley and others say the January reading could be skewed because it’s likely there were a much higher number of lower-paying hourly jobs that were counted as lost in January. Many of them should be from the leisure and hospitality industry.

This means that the gain in hourly wages could be even larger than the expected gain of 0.5%, as more of the gains were attributed to higher-paid workers.

“I think there’s a lot of risk in reading too deeply into average hourly wages because it will affect different industries differently,” Tilley said. He expects payrolls to pick up in February as the omicron retreats.

“We believe that everything that was lost and everything that appears in the report will mostly be recovered in February,” he said. “Omicron hospitalizations are coming down pretty quickly.”

Tilley expected a drop of 250,000 payrolls in January, based on its analysis of high-frequency payment processing data. But he said the negative ADP report could mean the number is even lower.

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