The report took most forecasters by surprise. Payroll processing company ADP reported this week that private companies cut 301,000 jobs in January, while the Dow Jones consensus forecast a lackluster 150,000 jobs added.
But the day favored the small group of economists who saw hidden positive trends in previous reports. Here’s how to make sense of what we learned today.
Turnover: a net increase of 467,000 jobs
This report was surprising, given that the survey data was collected in the midst of Omicron’s surge. And the effects of the virus were clearly visible: 3.6 million workers were absent due to illness, and 1.8 million were prevented from looking for work because of the pandemic, while the percentage of teleworkers jumped.
But the labor market appears to be growing too much to have been shattered by Omicron, with healthy employment gains visible across sectors as more people have returned to the workforce given the promise of higher wages. Another factor: Employers such as retailers who typically only keep their workers on vacation have kept most of these seasonal workers on their payroll.
Julia Pollak, chief economist at ZipRecruiter, said that’s a sign of market competitiveness.
“If it hadn’t been for Omicron, the jobs report would have been hugely impressive,” she said. “This suggests that, seasonal adjustment factors aside, February, March, April could look very good.”
Wages are up – a lot
Over the past year, salaries have increased by 5.7%. By comparison, the increase from January 2019 to January 2020 was 3.1%, and that was when the labor market was most robust after a decade of expansion.
This is excellent news for workers, but it is a warning for the Fed, which seeks to control inflation. Price spikes have largely been driven by aggressive spending and supply chain bottlenecks, and wage gains won’t necessarily boost inflation if accompanied by greater productivity and business profits. But if labor costs rise at a rate faster than most businesses can afford, that could exacerbate price increases.
For now, Pollak isn’t worried because many workers are also retiring, and those employees tend to be the most experienced — and the most expensive.
“The overall payroll isn’t growing very fast because they’re losing all of their highest-paid workers,” she said, while citing the restaurant industry as an exception.
November and December are much better than we thought
Turns out the job market has been hot for a while. The Labor Department revised up its estimate of jobs added in December to 510,000, which was previously 199,000. And it now estimates that 647,000 jobs were added in November, up from its previous reading of 249,000. This means that the number of jobs added in those months was more than double what was previously released.
Employment reports are still revised for greater accuracy over subsequent months as the Bureau of Labor Statistics obtains more data, but revisions have been particularly significant during the pandemic due to the uncertain state of the world.
This is because the government incorporates its employer and employee survey data into its models, which depend on data points such as the total population or the number of businesses in the country, and any small change in parameter can affect the final number that is spat out.