Chief Economist Scott Brown discusses current economic conditions.
The U.S. economy lost 2.77 million jobs in the initial estimate for January, which is on par with what we saw a year ago (-2.79 million). Seasonally adjusted, this was recorded as a 49,000 gain (with private-sector payrolls up just 6,000). Still, accounting for the seasonal noise, the recent data indicated that the job market has cooled off significantly following a sharp rebound in the late spring and summer (payrolls averaged a 29,000 monthly gain over the three months ending in January). The slowdown reflects the pandemic surge (and efforts to contain it). The bigger test for the job market occurs from February to June, when payrolls normally ramp higher. The pandemic is likely to restrain job growth in the near term, but we ought to see stronger gains once vaccines become more widely distributed.
Heading into the January Employment Report, seasonal adjustment was expected to be a factor. The end of the holiday shopping season contributes to job losses each January. In addition, some firms will wait until after the holidays to trim their workforce, while winter weather is a dampening factor in some industries (such as construction and travel). With reduced hiring in November and December, there should have been fewer layoffs in January. However, December job gains in retail were revised higher in this report. Courier (package delivery) jobs fell by 300,100 this January (vs. -141,400 a year ago). Construction shed 254,000 (vs. -207,000 a year ago). On a seasonally adjusted basis, restaurants and bars shed 19,400 jobs, following a 402,200 decline in December (revised lower), reflecting pandemic restrictions.
The unemployment rate fell to 6.3% in January (from 6.7% in December, but up from 3.5% a year ago). The decline was concentrated among teenagers, young adults, and older workers (each had seen an increase in unemployment in December), which suggests some issues with the seasonal adjustment. The unemployment rate for prime-age workers (aged 25-54) held steady at 5.8%. The unemployment rate understates the degree of weakness in the job market, as nearly four million workers exited the labor force between February and December last year (and are no longer officially counted as “unemployed.” If the size of the labor force has remained at the February 2020 level, the unemployment rate would be closer to 9%.