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U.S. employment growth likely slowed in January amid Omicron surge, job losses possible

[February 04, 2022] By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth likely slowed sharply in January as COVID-19 infections lashed the nation, disrupting activity at high-contact business, a temporary setback to the labor market recovery that was already reversing at the end of the month.

There is even a strong possibility that the economy lost jobs last month as lower-paid hourly workers in industries like healthcare as well as leisure and hospitality, who typically do not have paid sick leave, bore the brunt of the winter wave, driven by the Omicron variant of the coronavirus.

The Labor Department will publish its closely watched employment report on Friday. Economists and White House officials have urged against reading too much into the report, which will also contain annual revisions to the establishments data and new population controls for the household survey. Federal Reserve officials, who are expected to start raising interest rates next month, are likely to brush aside the report.

"The hiccup in the labor market and lost jobs is temporary. It is the inflation danger that is paramount in the minds of Fed officials," said Christopher Rupkey, chief economist at

FWDBONDS in New York. "We don't care how weak the monthly employment report is for January, no central banker worth his or her salt will believe the economy is faltering."

The survey of establishments is likely to show that nonfarm payrolls increased by 150,000 jobs last month after rising by 199,000 in December, according to a Reuters poll of economists.

Part of the slowdown will reflect ongoing challenges finding workers, with 10.9 million job openings at the end of December.

Estimates range from a decrease of 400,000 to a gain of 385,000. A decline in payrolls would be the first since December 2020.

According to the Census Bureau's Household Pulse Survey published in mid-January, 8.8 million people reported not being at work because of coronavirus-related reasons between Dec. 29 and Jan. 10. Its survey of small businesses also showed an increase in establishments reporting large negative impacts from the pandemic between Jan. 10 and Jan. 16.

The government surveyed businesses in mid-January for the payrolls portion of the employment report, when Omicron infections were peaking. Workers who are out sick or in quarantine and do not get paid during the payrolls survey period are counted as unemployed in the establishment survey even if they still have a job with their companies.

According to the latest government data, paid sick leave was available to 79% of civilian workers in March 2021.

The labor market, and indeed the economy's troubles at the start of the year are mostly behind. The government reported on Thursday that first-time applications for unemployment benefits dropped for a second straight week last week, retreating further from a three-month high touched in mid-January.

The United States is reporting an average of 385,875 new COVID-19 infections a day, sharply down from the more than 700,000 in mid-January, according to a Reuters analysis of official data.

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People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York October 7, 2014. REUTERS/Shannon Stapleton/File Photo

"As the medical situation changes, so will the employment impact," said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Massachusetts. "The January jobs report will be another great example of how not reacting to immediate news, but instead looking at the underlying data, can make you a better investor."

NOISY REPORT

Adding to the uncertainty surrounding the payrolls number, actual employment in January typically falls after the holiday season hiring. The model used by the government to strip out seasonal fluctuations from the data accounts for this by adding about 3 million jobs to produce the seasonally adjusted figure.

The government estimated last August that the economy created 166,000 fewer jobs in the 12 months through March 2021 than previously reported. This could impact the January figure.

"If fewer than usual layoffs occur in some industries this year, perhaps reflecting that the level of employment is already lower than desired given worker shortages, adjusted figures would show a large increase," said Veronica Clark, an economist at Citigroup in New York.

A weak payrolls number was flagged this week by the ADP National Employment report, which showed private payrolls declined in January for the first time in a year.

White House officials have been frantically trying to prepare the nation for a disappointing payrolls number, with several officials offering a preview of the report.

The survey of households, from which the unemployment rate is derived, could offer a better view of the labor market. It counts people who have a job as employed regardless of whether they got paid during the survey week if they were temporarily absent from their jobs because of illness, bad weather, vacation, labor-management disputes, or personal reasons.

The unemployment rate is forecast unchanged at 3.9%, underscoring tightening labor market conditions. New population assumptions will, however, cause a break in the series. January's jobless rate and other ratios from the household survey are not directly comparable to December.

With Omicron's surge keeping workers at home, the pool of labor likely remained small. The workforce is 2.2 million jobs below its pre-pandemic level.

The loss of low-paying hourly jobs likely boosted wage growth. Average hourly earnings are forecast rising 0.5%, which would raise the annual increase to 5.2% from 4.7% in December. Economists also expected an increase in overtime pay as workers covered for their absent colleagues.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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