US payrolls grew month over month in January following a brief dip into negative territory in December. Peering under the hood, though, this report did little to dispel the notion that the labor market’s recovery has been stalling out, and likely bolsters calls for additional fiscal stimulus.
The US Bureau of Labor Statistics released its monthly employment report this morning, revealing that the domestic economy added 49,000 jobs in January, falling short of Bloomberg-surveyed economists’ forecasts for a 105,000 gain. Large negative revisions to December’s number, as well as January’s large seasonality adjustments, cast this positive headline number in a somewhat more nebulous light. The unemployment rate notably fell to 6.3% from 6.7%, but that was paired with a labor force participation rate that declined to 61.4% from 61.5%.
Average hourly earnings rose 0.2% month over month and 5.4% year over year, signaling lower-wage workers have borne the brunt of job losses. One cohort of the labor market being disproportionately affected distorts these figures and reduces their usefulness as a gauge of whether inflation could begin to creep into the picture. The recently released Employment Cost Index, though, adjusts for these distortions and showed fourth quarter growth of 0.7% quarter over quarter and 2.5% year over year. This is below the prior cycle peak of 3.2% year over year, and therefore is not a present threat in our opinion.
As seen in the LPL Chart of the Day, the jobs recovery has plateaued just under the 143 million payrolls level in the last four months. This follows an initial sharp recovery off April’s bottom, and it should come as no surprise that the tapering off has coincided with rising case counts and colder weather. We remain about 9.9 million jobs short of February 2020’s 152.5 million peak.
The composition of January’s report follows trends that are all too familiar from previous COVID-19 spikes, the dichotomy between jobs that can be done at home and those that cannot. Retail trade lost 37,800 jobs while the leisure and hospitably industry lost 61,000, two segments that have been hardest hit throughout the pandemic. Meanwhile, professional and business services added 97,000 jobs and government jobs increased by 43,000.
“The past few months on jobs day, we have flagged the need for fiscal stimulus to get us through to the other side of this economic soft patch,” explained LPL Financial Chief Market Strategist Ryan Detrick. “As the pace of vaccinations picks up, we are hopeful that the job market may soon start to benefit from more sustainable economic growth.”
Earlier this week, an important milestone made headlines across the country as the total number of vaccinations administered surpassed the total number of COVID-19 cases. Boots on the ground are becoming increasingly efficient at distributing the vaccine, and positive trial data boosted hope that a third vaccine soon may be made available for emergency use. Obviously, as a larger proportion of the population receives their vaccinations, economic activity can pick up and hiring in hard-hit service jobs can resume.
We may already be seeing nascent signs of this. The jobs report’s window cuts off at the end of the week containing the 12th of the month. Initial claims for unemployment data, however, improved notably in the second half of the January. If the improvement in layoffs were also reflected in hiring, we would expect that to show in next month’s report. We may be slightly early in our optimism, but when paired with warmer weather on the horizon, vaccination progress gives us hope that we will soon break through this near-term ceiling in total US payrolls.
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