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Employment Poised to Stall in January

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Payroll employment is expected to flatline in January, as disruptions due to Omicron mount. A small gain in private sector employment is expected to offset a drop in public sector payrolls. A drop in the overall payroll figures cannot be ruled out.

Local schools struggled to remain staffed as Omicron ripped through the ranks of teachers, bus drivers and support staff, while many universities went back online, at least briefly, to limit outbreaks. The only offsetting factor is that January tends to be a time when seasonal hires are let go. The data is adjusted to reflect those seasonal shifts. More than a half million retail workers alone are usually let go in January. Some online retailers and transportation companies kept seasonal hires this year to cover for workers out sick or quarantined due to Omicron.

The Household Pulse Survey for late December/early January revealed that a record-breaking 8.8 million were out sick or caring for someone sick; that was before the Omicron wave crested in most parts of the country. This was at the same time that initial unemployment claims spiked the week ending January 15, the same week as the survey of employment for the month.

Separately, data from the online job site Indeed revealed that job postings slowed but remained staggeringly high in January. Recruiting likely slowed, given the breadth of the disruptions that we have seen.

Leisure and hospitality is the sector most at risk for a correction. Open Table reservations and walk-ins fell fairly dramatically relative to the 2019 baseline during the month; some smaller restaurants in hotspots were forced to temporarily close due to staffing shortages. Hotel occupancies deteriorated sharply relative to the 2019 baseline, while box office revenues cratered.

Transportation was hit hard. Truck drivers tend to have very low vaccination rates, while Canada required proof of vaccinations for those crossing the border starting January 15, the end of the survey week. The backlash in Canada is intensifying as the shift has emptied store shelves of fresh fruit and vegetables.

Manufacturing activity appears to have held up better, at least through the survey week. Several vehicle plants were idled due to chip shortages again in January, but most of those closures occurred after the survey week.

Average hourly earnings are expected to jump another 0.6% from December in January, and rise 5.3% from a year ago. That is the strongest pace since May 2020 but is more reflective of a loss in low-wage jobs than an actual acceleration in wages. The pivot back online and away from in-person activities and the impact that has on the composition of employment gains distorts our reading on overall wage gains. Hours worked also suffered a blow as the ranks of those who could not work due to illness increased.

Separately, the unemployment rate is expected to hold at 3.9% as the slowdown in employment gains is likely to be offset by a drop in participation in the labor market. Those who can’t look for work because they are out sick will not be counted in the workforce if they haven’t looked for work in the two weeks preceding the survey week. The ranks of those absent from work due to illness are expected to hit a new record in January. The last record was during the initial outbreak in April 2020; two million workers were out sick back then, mostly due to COVID. This January we could easily see more than five million workers out sick. We will also be watching the data on workers who are displaced by employers who were forced to close due to COVID; those figures fell in December but are expected to rise again in January. Those figures should remain well below the pandemic peaks that we saw during initial lockdowns.

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