Chief Economist Scott Brown discusses current economic conditions.
The January job market data were expected to be squirrelly, with the Omicron variant expected to dampen the pace of nonfarm payrolls. Instead, we got an upside surprise. Payrolls rose by 467,000. More importantly, annual benchmark revisions redistributed job growth over the course of last year, showing a much stronger near-term trend. Wage pressures continued. One shouldn’t make too much of any single report, but the January data suggest that a 50-basis-point hike should be on the table at the mid-March FOMC meeting.
Seasonal adjustment is huge in January. We lost 2.82 million jobs before adjustment. That’s less than usual (unadjusted payrolls averaged a 2.94 million decline in the five most recent pre-pandemic Januarys). That makes sense. There is seasonality related to the holiday shopping season (retail, deliveries), the weather (construction), leisure & hospitality, and the school year. One might expect that these seasonal losses would be smaller this year – either because fewer workers were hired last year or because firms would be reluctant to give up workers in a tight job market. Whatever the case, a smaller-than-usual decline in unadjusted jobs translates to a strong gain in adjusted jobs.
The U.S. averaged 800,000 COVID-19 cases per day in mid-January (vs. a peak of a little less than 200,000 during the Delta wave). Omicron surely had an impact on the January labor market figures. We saw a sharp run-up in weekly jobless claims in the first couple of weeks of the month, down more recently (the payroll data are for the pay period that includes the 12th of the month, so the monthly figures are more indicative of the first half of the month). Omicron lowered average weekly hours (34.5, vs. 34.7 in December and 34.8 in November). Details of the Household Survey data (which covers the week that includes the 12th of the month) showed that 2.3% of those with jobs could not work due to illness (in comparison, it was 1.0% in the Delta wave).
Once a year, the Bureau of Labor Statistics benchmarks the figures to payroll tax receipts. The March 2021 level of payrolls was revised down by 166,000 (or -0.1%) – very small. More importantly, the benchmark revision shifted job growth around last year. Instead of a downtrend, with softer numbers in the fourth quarter. The trend now appears flatter – and much stronger in the near term. November and December were revised a net 709,000 higher. Payrolls averaged a 541,000 gain over the last three months.