January Jobs

The headline payroll number disappointed again in December, but much like in November, the household survey told a different story. The December jobs report is a good example of why the “Employment Situation” is not boiled down to a single number. Employers added 199,000 workers to payrolls in December, somewhat below expectations, with private-sector payrolls gaining 211,000, while the unemployment rate fell to 3.9 percent. The labor force participation rate rose to 61.9 percent.   Here is a brief summary of the major economic indicators since the last jobs numbers: The Producer Price Index for final demand increased 0.2 percent in December; The Consumer Price Index increased 0.5 percent in December; Real average hourly earnings increased one cent from November to December; Orders for durable goods (including defense and aircraft) decreased 0.9 percent in December; New home sales increased 11.9 percent in December; The Price Index of U.S. imports decreased 0.2 percent in December; ISM Services Index decreased 2.4 percentage points to 59.9 percent in January; ISM Manufacturing Index decreased 1.2 percentage points to 57.6 percent in January; Consumer Confidence Index decreased 1.4 points from 115.2 to 113.8 in January; ADP reported private sector employment decreased by 301,000 jobs in January. Gordon's Guesstimate: January Jobs Last month’s employment figures disappointed, but other measures of the labor market defied an easy characterization of the December report as “bad.” By the lights of the household survey, the labor market in December was very strong indeed. Unemployment picked up a 3-handle for the first time since February of 2020, while labor force participation inched ahead. That the Omicron surge wasn’t quite captured by the conclusion of the reference period for the December surveys, suggested by the rebound of unemployment claims among other indicators, likely means the January employment report will be heavily colored by COVID-19-related disruption. Again.   The Biden Administration evidently shares this view and has deployed a number of prominent economic policy staffers to presage a disappointing report. Managing expectations around employment figures is not a novel White House exercise, but the past week’s PR effort is somewhat more concerted than is typical. The administration has otherwise been trying to sell a story of an unalloyed economic boom. Again, this is not a recent innovation, but touting the “greatest year of job creation” without any mention of COVID-19 and the jobs lost prior to the rebound is almost comically ham-fisted. So, the administration is walking a tightrope subject to the winds and whims of noisy, monthly jobs reports.  There’s every indication that the jobs report will show distress in the labor market in January. And there’s every reason to expect that it’s a function of the Omicron surge. If workers were out sick and did not get paid, they will not be counted as employed in the payroll survey, even though in all likelihood they’ll be back on the job by next month’s count. So, we can and should expect that, and it’s not unreasonable for the administration to note that. But unpaid sick leave doesn’t explain the uptick in unemployment insurance claims in January. Initial claims jumped by 83,000 from January 1 to January 15, although claims fell over the next two weeks.  This guesstimator had previously posited that perhaps Omicron may not animate the real economy in the same way as Delta or other surges in COVID-19 cases. It may be true that Omicron did not weigh on the real economy to the same degree, but it will likely figure prominently in the January data. Confounding the expectations are measurement challenges that arise every January—specifically, the benchmark revision in the payroll survey, which involves re-anchoring the employer survey to other observations. Thus, for January, both the measured and the measuring stick are in considerable flux.   There’s admittedly more guess than estimation for the January jobs report. Directionally, the indicators suggest January will reflect a labor market confronted with greater headwinds than did December, if only temporarily. This guesstimator is expecting an increase in employment of 75,000, and for unemployment to increase to 4.0 percent. I expect average hourly earnings to increase by 16 cents for a 5.2 percent yearly gain.