The U.S. economy gained an impressive 467k jobs in January, well above market expectations. January’s report also included the annual benchmark revisions to the payrolls numbers, and was a result the monthly gains in employment in November and December were revised up materially (+709k). Overall, payrolls remained 1.9% below their pre-pandemic level.
The unemployment rate rose a tick to 4.0% in January. The household survey data reflected updated population estimates. Removing the effects of the population controls, employment fell 272k. The number of people on temporary layoff rose 147k, the largest increase since December 2020, likely reflecting Omicron-related furloughs. The labor force participation rate is now at 62.2%, below the 63.4% pre-pandemic
Looking at shifts by industry, employment rose in leisure and hospitality (+151k), professional and business services (+86k), retail (+61k) and transportation and warehousing (+54k). All of these sectors, except leisure and hospitality, now have employment levels above their pre-pandemic highs.
Average hourly earnings were up 5.7% from a year ago in January, which was likely biased upwards by lower average hours.
The impact of Omicron can be seen in reduced hours worked. The index of aggregate weekly hours was down 0.3% month/month, the first monthly decline since last February.
Key Implications
Payrolls defied expectations in January, posting a solid month of increase. The impact of Omicron on the jobs market was more evident in the household survey, where the unemployment rate edged higher. The survey reference period is shorter for the household survey than for payrolls, so the bar for being counted as unemployed for a short work absence is lower.
That said, we expect the impact of Omicron wave to be nasty, brutish and short. Hospitalizations across many regions are already coming down, and by March, Americans will likely be resuming many of the close contact activities they put on hold. We expect the disruption to output to be greater than employment, but it will also bounce back strongly in the second quarter. Several Fed officials have already indicated they would look through any Omicron related disruptions. There is nothing in today’s report to dissuade the FOMC from taking rates higher in March.
