January Jobs

In the December jobs report, payrolls declined for the first time since April, by 140,000, and the unemployment rate held firm after 7 months of consecutive declines at 6.7 percent. While this result was disappointing, the reference period for December came before the latest round of economic relief from Congress. Here is a brief summary of the major economic indicators since the last jobs numbers: The Producer Price Index for final demand increased 0.3 percent in December; The Consumer Price Index increased 0.4 percent in December; Real average hourly earnings increased five cents from November to December; Orders for durable goods (including defense and aircraft) increased 0.2 percent in December; New home sales increased 1.6 percent in December; The Price Index of U.S. imports increased 0.9 percent in December; ISM Services Index increased 1.0 percentage point to 58.7 percent in January; ISM Manufacturing Index decreased 1.8 percentage points to 58.7 percent in January; Consumer Confidence Index increased 2.2 points from 87.1 to 89.3 in January; ADP reported private sector employment increased by 174,000 jobs in January. Gordon's Guesstimate: January Jobs Authored by Gordon Gray, AAF’s Director of Fiscal Policy The net job loss in December was a disappointment, though a somewhat predictable one. Cold weather and a persistent pandemic wrought more havoc in the struggling leisure and hospitality industry, which saw a decline of 498,000 jobs. Setting aside the leisure and hospitality industry, however, employment in all other industries increased on net by 358,000 jobs in December. A loss of half a million jobs is of no small concern, and clearly reflects an economy still seriously exposed to damage from the ongoing pandemic. Congress’s enactment and extension of relief policies was the best response to the challenge that the sharply divided government of December 2020 could produce. That relief package will aid the most vulnerable households and buoy a macroeconomy that is still somewhat below potential. The checks, extended unemployment insurance, income supports, and other fiscal relief contained in the year-end compromise deal have already started showing up in bank accounts and consumer data. According to high-frequency consumer data provided by Opportunity Insights, consumer spending associated with lower income substantially increased subsequent to the enactment of the latest relief package, and currently stands at about 13 percent above the same period a year ago. While research suggests most such economic impact payments are saved and not particularly well-targeted, some recipients clearly are spending the extra money. The sweep of the other major economic indicators also suggests the January report will show a labor market modestly on the upswing. The onset of a surge in COVID-19 cases, related restrictions, and cold weather necessarily hammered the hospitality industry. But those same jobs aren’t going to be lost again in January. To be sure, this is a vulnerable industry, employing 13 million workers, and it faces considerable risk, but it is reasonable to assume that January will not see the same declines as those in December. The balance of the indicators points to health in the services industry, improved household balance sheets, and gain in overall private-sector employment. This guesstimator is assuming a gain of 250,000 jobs, which is a bit on the sunny side of the consensus. I assume the unemployment rate will decline to at 6.6 percent and workers will see a 4-cent increase in average hourly earnings, bringing the yearly gain to 5.3 percent.