The unemployment rate declined in January to 6.3%, but job creation fell short of expectations. Nonfarm payrolls increased by a meager 49,000 for the month, as COVID-19 lockdowns continued to weigh on the labor market. Expectations had crept upward to above 100,000 in recent days.
The result was exacerbated by sharp downward revisions that trimmed gains in the preceding two months to just 37,000 — a drop of nearly 200,000 jobs from the previously reported gain of 196,000 in the last two months of 2020. Moreover, the jobless rate is still well above its exceptionally low pre-pandemic level, with employer payrolls still nearly 10 million below their levels a year ago.
Expectations for January payrolls had crept higher in recent days, lifted in part by declining first-time jobless claims. Given the timing of this survey, it’s likely that the February jobs report will benefit should layoffs continue to trend lower in the coming weeks.
Modest job losses in the construction and manufacturing industries suggest a small step back in parts of the economy that had been surprisingly firm in recent months, adding jobs even as the economy had slowing. Conversely, the small increase in service sector jobs doesn’t begin to reverse the significant losses since March, but it does provide reason for hope that the service economy could be poised to turn the corner. Growing indications that restrictions may be lifted in the coming month should particularly benefit those businesses that have felt the impact of social-distancing measures and restrictions on capacity and activities.
Hotels and restaurants have been particularly hit hard since last March, and both saw job losses again last month. Combined, the 38,000 jobs lost weren’t as dire as the 434,000 in December, providing some hope that the worst may be behind with brighter days ahead. Still, much more progress will be needed in reducing COVID-19 risk, lifting of lockdowns and restrictions, and being able to return to more normal consumer activities for the 3 million jobs lost in the sector over the past year to return.
The divergence in employment conditions between goods-producing industries and the service sector reflects the differing impact of pandemic-related restrictions and changing consumer behavior. It’s still easier for consumers to buy “stuff” than it is to engage in any number of activities that might increase exposure risk.
The January jobs report tells the current story of the economy: there are signs of stabilization, but limited evidence of reacceleration that the hardest-hit parts of the economy are picking up steam. There’s also clear evidence that the impact of COVID-19 has varied widely across businesses and individuals. Continued progress in effective vaccine distribution and a gradual reopening of the economy in the coming months will be critical to reversing the recent slowdown and returning sidelined Americans to work. That should also be the spark that reignites growth in the coming quarters.
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