(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, February 4 at 8:30 AM Eastern Time.)
The January jobs report is likely to look weaker than recent reports, first and foremost because of the spread of the omicron variant. While the variant was just starting to spread in the United States during the reference weak for the December report, it was pretty much at its peak in the middle of January. As a result, business has fallen off in restaurants and other sectors with in-person contact.
While companies may still be hesitant to lay off workers in the current labor market, it is likely that many did put off hiring. As a result, we are likely to see weak, and possibly even negative, job growth in January.
Possible Rise in Unemployment
We may also see a modest uptick in the unemployment rate, the first since June. If we do see an uptick, the spread of the omicron variant would be the most real factor, but there is also error in the data. In the last six months, the unemployment rate fell by 2.0 percentage points, as the household survey showed an increase in employment of 4,360,000 people. By contrast, the establishment survey showed an increase of 3,050,000 jobs. (The surveys are much closer over the full year, with the establishment survey actually showing somewhat more growth.)
Anyhow, given the extraordinary employment growth shown in the household survey in recent months, it would not be surprising if part of it was due to survey error. This could mean that even if omicron did not cause the true unemployment rate to rise, we could see a 0.1 to 0.2 percentage point rise in the unemployment rate in January.
The seasonal adjustment is always a big deal in January as the unadjusted job numbers always fall sharply, largely because of the end of the holiday shopping season. For example, from December 2019 to January 2020 the unadjusted data showed a loss of 2,791,000 jobs. The seasonally adjusted data showed a gain of 315,000 jobs.
If the economy is not following its normal seasonal patterns, as is likely due to the pandemic, the seasonal adjustments may skew the January data. For example, if retailers lay off fewer holiday employees because they hired fewer, then the seasonal adjustment could lead to a stronger January than is warranted by the underlying data. Any errors from this source are inevitably temporary, as adjustment problems are reversed in later months.
Upward Revisions to Prior Months Data
We have been seeing a pattern of upward revisions to previous months’ data, often by large amounts. The direction of revisions is strongly correlated with the direction of revision in prior months. Therefore, it is likely that the November and December jobs numbers will be revised upward in this report.
Moderating Wage Growth
It is likely that we will see some slowing of wage growth in January. This is a positive development since we can’t expect to sustain wage growth in excess of 6.0 percent (the annualized rate comparing the three months from July to September with the three months from October to December), without an inflation rate in a 4–5 percent range. The Employment Cost Index (ECI) provided evidence for some slowing in the last quarter of 2021.
Average Workweeks Likely to Remain Long
Employers are compensating for difficulty in hiring by increasing the length of workweeks. The length of the average workweek in the fourth quarter averaged 34.7 hours, up from 34.3 hours in the fourth quarter of 2019. It is likely to remain high in January, even with the spread of omicron, as employers still struggle to find workers. (The data refer to hours paid, not hours worked. This means that workers taking paid sick leave because of the pandemic should not affect the hours calculation.)
State and Local Government Employment May Turn Around
The number of jobs in state and local governments has been falling since July. The pattern of declining employment is consistent with the GDP data released last week showing that spending by state and local governments fell at a 2.2 percent annual rate. The likely issue is that governments are not able to compete with private sector employers who are rapidly raising wages and offering hiring bonuses. This is consistent with the story in the ECI, which showed compensation in the private sector up 4.4 percent over the last year compared to a gain of just 2.6 percent in the public sector.
Self-Employment Still High, but Possibly Trending Downward
The number of people who report being unincorporated self-employed has edged downward over the last two months, although it is still 500,000 more than the average for 2019. Pandemic-related job loss, combined with the pandemic checks and special unemployment benefits, gave many workers the opportunity to start their own businesses. With jobs now plentiful, we will see whether workers stay with newly formed businesses or go back to payroll employment.
The 7.1 percent unemployment rate for Black workers is still 1.7 percentage points above its pre-pandemic low. By contrast, the unemployment rate for whites stands at 3.2 percent, just 0.2 percentage points above the low point reached before the pandemic. As the labor market tightens further, the unemployment rate for Blacks should get closer to its pre-pandemic level.
The unemployment rate for Black teens has been rising since the summer when it hit an all-time low of 9.9 percent in June. The 21.0 percent rate for December is only slightly above the 20.7 percent year-round average for 2019. Clearly the unemployment rate for Black teens can be lowered a great deal.
Labor Market Still Looks Strong, but the Pandemic is Not Over
We are seeing the labor market getting closer to normal. We should not expect huge waves of hiring or plunges in the unemployment rate in the months ahead, but rather gradual progress. The effects of the omicron wave will be visible in the January data, but will hopefully fade rapidly in February and March.
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