The sudden slam to the economy from the omicron Covid variant could show up in January’s employment report as the first big loss of jobs since late 2020.
Economists have wide-ranging expectations for the report, expected Friday at 8:30 a.m. ET. Economists polled by Dow Jones call for a 150,000 gain in payrolls. However, many economists — like those at PNC, Jefferies, Morgan Stanley, Goldman Sachs and Wilmington Trust — expect big losses.
“There’s no question this is omicron. It’s a pandemic and it’s not without consequences,” said Diane Swonk, chief economist at Grant Thornton. She noted the number of jobs lost could be especially high because many workers are not paid sick leave, and if they call out ill, they are not counted as working.
PNC forecast the most job losses at 400,000. Other forecasts include a gain of as many as 250,000 jobs. The last time the monthly employment report was negative was December 2020, when it was down 306,000 and parts of the economy were still shut down.
According to Dow Jones, economists expect the employment rate to remain the same at 3.9%. They forecast a gain in average hourly wages of 0.5% on a monthly basis, or a 5.2% increase year over year. That’s compared to a monthly rise of 0.6%, or about 4.7% on an annualized basis, in December.
The ‘fog of omicron’
Swonk said she expects a flat to negative number of jobs, and she said job losses could easily be in a range of several hundred thousand.
“It’s the fog of omicron. You can’t see through it,” she said. Swonk expects some recovery in February and a bounce back by March. She noted that unemployment claims are falling again after a sudden surge in January.
Tom Simons, money market economist at Jefferies, has been expecting a loss of 200,000 jobs.
“I think the market has already baked this in at this point. There could be some initial volatility,” he said.
“But it’s like one of those days where a half hour after the payrolls print, the market goes back to unchanged… it’s one of those things where the stakes are not particularly high because everyone understands why the data is weird.”
For the Federal Reserve, the report should confirm the swift negative reaction in the labor market to omicron, and it is not a surprise. It is also likely to have no impact on Fed policy or interest rate hikes since omicron’s effects are expected to be fleeting.
Swonk said the Bureau of Labor Statistics has had a particularly hard time reporting the pandemic’s impact on the labor force. Initially, it undercounted job losses in 2020, and then later did not add them fast enough.
In an unusual step, the White House has already been warning the payroll number could be weak. At a White House briefing this week, Press Secretary Jen Psaki pointed out that nearly 9 million people called out sick in early January when the jobs data was being collected. The survey was taken in the week of Jan. 12, the height of the omicron spike.
Downward revisions to forecasts
ADP’s private sector data, released Wednesday, showed a loss of 301,000 jobs in January, much greater than expected. That made some Wall Street economists more negative.
Morgan Stanley economists Thursday said they revised their forecast sharply lower, to a decline of 215,000 jobs, in part because of comments from Fed officials and the White House suggesting the data could be weaker than expected.
“Omicron took a larger-than-expected bite out of the labor market in January with workers out sick and hiring plans put on ice. We forecast a net payroll loss of 215k, but strong household survey gains should help the Fed look through the headline as a one-off,” they wrote.
Wilmington Trust chief economist Luke Tilley said the jobs data could be unreliable in other ways but he will be watching to see what impact there is on labor force participation, which is just slowly creeping higher.
Watching hourly wages
Average hourly wages is an important measure watched by markets for its signal on inflation. But Tilley and others say the January reading could be distorted because it’s likely there were a far greater number of lower paid, hourly jobs that were counted as lost in January. Many of those are expected to be in the leisure and hospitality sector.
That means the gain in hourly wages could be even higher than the expected half-percent gain, since more of the gains were counted against higher paid workers.
“I think there’s a lot of risk in reading too deeply into average hourly wages because it will affect different sectors differently,” Tilley said. He does expect the payrolls to spring back in February, as omicron recedes.
“We do believe whatever was lost and whatever shows up in the report will mostly be regained in February,” he said. “Omicron hospitalizations are moving down fairly quickly.”
Tilley had been expecting a decline of 250,000 payrolls in January, based on his analysis of high frequency payment processing data. But he said the negative ADP report could mean the number is even lower.