U.S. employment growth likely rebounded; more government money still needed
U.S. job growth likely rebounded in January as authorities began easing COVID-19 restrictions on businesses with the ebbing pace of infections, which could offer the strongest signal yet that the worst of the labor market turmoil was behind after the economy shed jobs in December.
The Labor Department’s closely watched employment report on Friday will, however, not lessen the need for additional relief money from the government, with millions of people experiencing long bouts of unemployment and others having permanently lost their jobs, and given up the search for work.
The economy would still be about 10 million jobs short from the labor market’s peak in February 2020. President Joe Biden is pushing the U.S. Congress to pass a $1.9 trillion recovery plan, which has been met with resistance from mostly Republican lawmakers, now worried about the swelling national debt.
Biden’s fellow Democrats in the Senate were on Thursday set to take a first step toward the ultimate passage of the proposed stimulus package.
“The stimulus has to pass,” said Jason Reed, finance professor at the University of Notre Dame’s Mendoza College of Business. “Whatever the payrolls number is, we shouldn’t forget we are significantly under the amount of jobs needed to get back to where we were a year ago.”
The survey of establishments is likely to show that nonfarm payrolls increased by 50,000 jobs last month after declining by 140,000 in December, according to a Reuters survey of economists. December’s drop was the first in eight months and came amid renewed restrictions on businesses like restaurant and bars to slow a resurgence in coronavirus infections.
The pace of COVID-19 infections appears to have peaked in early January, a trend that could also give a lift to hiring in the months ahead, should it hold. Infections hit a one-day record of roughly 300,000 in early January but by month’s end were averaging closer to 100,000 a day, with most of the country seeing a downward trend, according to a Reuters tally.
The economy has recouped 12.5 million of the 22.2 million jobs lost in March and April. The Congressional Budget Office estimated on Monday that employment would not return to its pre-pandemic level before 2024.
Payrolls could surprise on the upside as the Reuters survey was conducted before a string of reports this week showing rebounds in private payrolls and services industry employment in January. Manufacturers also hired more workers in January.
Those fairly upbeat reports prompted Goldman Sachs to boost its payrolls forecast by 75,000 to 200,000.
The pandemic has also disrupted normal seasonal labor market patterns, especially in retail and transportation industries, which could exaggerate job growth in January.
According to economists, actual employment in January typically falls by about 2.8 million, which is accounted for by the model that the government uses to strip out seasonal fluctuations from the data.
TREADING WATER
Nearly $900 billion in additional relief money provided by the government at the end of December could also have allowed businesses to rehire workers last month.
“Because we saw less-than-normal retail holiday hiring, we may see less firing in January, which would push the reported number higher,” said Scott Ruesterholz, a portfolio manager at Insight Investment in New York. “Cutting through the noise, we believe the labor market is essentially treading water.”
A second straight month of job losses in January is possible as some labor market measures only stabilized in the second half of the month. The government surveyed businesses and households for January’s employment report in the middle of the month. The Conference Board’s survey last week showed consumers’ views of labor market conditions deteriorated further in January.
“There will still be legacy drags from the California stay-at-home orders and the closure of dine-in eating in New York and other cities,” said James Knightley, chief international economist at ING in New York.
With January’s report, the government will publish annual benchmark revisions to payrolls data. It estimated last August that the economy created 173,000 fewer jobs in the 12 months through March 2020 than previously reported.
New population controls will be introduced to the household survey, from which the unemployment rate is derived. That will create a break in the series, meaning that January’s jobless rate and other ratios from the household survey are not directly comparable to December.
The impact on the unemployment rate, forecast at 6.7% for January, is likely to be minimal. The jobless rate has been understated by people misclassifying themselves as being “employed but absent from work.”
Attention will be on the long-term unemployed, who accounted for 37.1% of the jobless in December. The number of permanent job losers will also be watched after posting its biggest drop in 10 years in December. Economists argue these numbers understate the economic pain from the virus.
“These counts of the unemployed do not take into account the millions of workers who have left the labor force or were misclassified as employed but not at work or had their hours cut,” said Elise Gould, a senior economist at Economic Policy Institute in Washington.
“This proves essential the need to provide a necessary lifeline to those workers and their families.”
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, is also another measure under scrutiny. The participation rate has declined significantly during the pandemic, with women accounting for the biggest share of dropouts.
That has been attributed to difficulties securing child care as many schools remain closed for in-person learning.
