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Employers Hold onto Holiday Hires Through Omicron Surge

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Payroll employment rose by 467,000 jobs in January, despite widespread disruptions triggered by the Omicron surge. Data for November and December were revised up significantly, more closely reflecting the improvement that we saw in the household survey. Much of the “strength” was due to the fact that fewer holiday hires were let go in January. The usual layoffs in the retail and food services sector fell well short of historic norms. Acute labor shortages, exacerbated by a surge in the number of people out sick, prompted employers to keep holiday hires on longer in January.

The household survey revealed that a record-breaking 3.6 million workers were absent from work due to illness during the month. Another six million were unable to work because their employer closed or lost business due to the pandemic. That is the largest pandemic-related disruption since June 2021.

The private sector accounted for 444,000 of job gains during the month but is still down 2.1 million from the February 2020 peak. Most of that shortfall is in the leisure and hospitality sector, which is still down 1.8 million, or nearly 11% from the previous peak.

The public sector added 23,000, mostly in local education as schools attempted to fill staffing shortfalls. Employment in the public sector is still down 735,00 from the previous peak. More than half of the shortfall is in state and local government education. Public schools remain severely understaffed. The National Guard has been called in to teach schools and drive busses where shortages are most acute.

Gains were largest in leisure and hospitality in January, which posted an increase of 151,000; food services alone accounted for 108,000 of those gains while accommodations accounted for much of the remainder.

Professional services added 86,000 jobs during the month and are now up more than half a million from the peak we saw in February 2020. Hiring was broad-based across management and consulting. A good portion of those hires were actually recruited in December and on-boarded in January.

Retail added 61,000 jobs, mostly in big-box discounters, which were more aggressive at keeping holiday hires and shortening quarantines for those exposed to COVID. Warehousing and transportation, which supports online retailers, posted solid gains.

Average hourly earnings surged 0.7% during the month and were up a sizzling hot 5.7% from a year ago. That is the fastest pace of wage gains since May 2020, which were distorted by a loss of low-wage jobs. Gains in high-wage jobs in the information sector, finance and professional services led the monthly surge in wages. Wages actually slowed in leisure and hospitality, retail, and transportation and warehousing after surging in 2021.

Average hours worked fell by 0.2 hours per week to 34.5, which is the lowest level since April 2020, but still well above pre-pandemic norms. Overtime hours rose slightly, as manufacturers attempted to ramp up production and cover for those out sick. There is a reason we are all exhausted. We are all working much longer workweeks during the pandemic than we did before the onset of the pandemic. A portion of time saved commuting is showing up as extra hours worked for those lucky enough to be able to work remotely.

Separately, the unemployment rate rose a tenth of one percent to 4%, according to the household survey. Employment improved along with participation in the labor markets. The participation rate jumped to 62.2%, the highest since the onset of the pandemic. However, the level of participation had a one-time adjustment to reflect upward revisions to labor supply from the 2020 Census. The adjustment does not apply to historical data, which means we have to be careful with historical comparisons. The only demographic that lost ground was the over-65. Fear of contagion no doubt sidelined some of those workers who had begun to return in late 2021. Boosters held up well against hospitalization but breakthrough infections picked up with Omicron.

Those working fully remotely moved up slightly as many firms paused the reopening of their offices during the Omicron surge. Telework due to the pandemic accounted for 15.4% of employed persons. That is less than half the peak we saw during initial lockdowns in the spring of 2020, but still well above the levels we saw before the onset of the pandemic.

Multiple job holders increased for the third consecutive month. That reflects a combination of factors including the end of emergency aid and stimulus and the recent surge in inflation. People who were once able to make ends meet with the higher wages they were suddenly taking home are now having to pick up more than one job again. Multiple job holders are now down a little more than half a million from February 2020 levels. That is a major move up in labor supply since last summer, when they were still down by about a million.

Those working part-time due to economic reasons fell to 3.7 million. That is the lowest level since August 2001, and reflects the gains in bargaining power for a good portion of workers as the economy reopened.

Bottom Line
Employment was resilient in January, despite the disruptions triggered by the surge in Omicron infections. Acute staffing shortages going into the surge helped to buoy those gains as employers were more likely to hold onto seasonal hires when the pace of infections skyrocketed. Wages continued to move up and were dominated by gains in higher wage jobs at the start of the year.

The Federal Reserve is now expected to raise rates by three quarters of a point by June. That could be with a rate hike at each meeting from March to June or with a one-half percent move.

The Fed has not ruled out moving one-half percent at any given meeting. Much will depend on the CPI data between now and March, which is expected to remain hot, despite some cooling in the service sector in January. We expect a total of five rate hikes, or 1.25% in 2022 and another four, or 1% in 2022. This is in addition to a significant reduction in the Fed’s mammoth balance sheet, beginning in June.

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