Payroll Growth During Omicron Surge Surprises

The U.S. Bureau of Labor Statistics (BLS) produced a shocker with their latest employment report, showing that employers added 467,000 new jobs in January.

Economists had estimated anemic growth, or even a net loss of jobs. The Biden administration had previously signaled that the jobs tally was going to be disastrous due to the rapid spread of the omicron variant of COVID-19.  

"Sometimes it's nice when everyone is wrong," said Nick Bunker, director of research at the Indeed Hiring Lab. "Today's report suggests that while omicron had a clear impact on day-to-day life in the United States, the labor market impact was less severe than expected. As we have seen in the past, the economic fallout from each successive wave of the pandemic has been smaller and smaller. This trend, along with strong demand for workers, suggests 2022 could be a year with continued strong gains for the labor market."

2021 was already on track to be a record year for employment growth, ultimately notching over 7 million new jobs. But the latest report had another revelation contained within it—massive revisions to previous months, calculated as part of annual adjustments to the data. What was initially reported as a disappointing gain of 199,000 jobs in December showed jobs went up to 510,000. November surged to 647,000 jobs from the previously reported 249,000.

"The average monthly payroll gain last year was over a half million, so while things might have appeared volatile at the time, employment was actually growing strongly over the year," Bunker said.

On the other hand, reported totals for the summer months were significantly decreased. For example, the blockbuster reports from June and July were brought down by over 800,000 jobs. 

Overall, the 2021 over-the-year change was 217,000 jobs higher than previously reported.

Julia Pollak, chief economist at ZipRecruiter, explained that the revisions were partly the result of seasonal adjustment factors. "The economy usually sheds upwards of 2.5 million jobs in January as the seasonal bump in retail and transportation employment subsides," she said. "But pre-COVID seasonal patterns no longer seem to hold. Retailers and transportation and warehousing companies raised hiring earlier than usual in 2021 and held onto workers after the holidays."

In other words, due to seasonal adjustment, laying off fewer seasonal workers than usual after the holidays translated as more jobs added.

Big Picture

Employment has increased by 19.1 million since April 2020 but is still down by 2.9 million from its pre-pandemic level in February 2020.

"The January jobs report shows the resiliency of the American economy," said Richard Wahlquist, president and CEO at the American Staffing Association in Alexandria, Va. "These broad job gains are even more encouraging when considering the number of workers who were out sick due to the omicron surge."

Becky Frankiewicz, the president of ManpowerGroup, North America, said that the report marked "a fresh start for the U.S labor market." She pointed to three positive trends: labor force participation finally heading in the right direction, women returning to the workforce, and sustained growth in hiring in some of the most heavily pandemic-impacted industries, including leisure and hospitality.

Large Gains

Leisure and hospitality employers reported the biggest employment gains in January, with 151,000 new jobs. Over 100,000 of those were in bars and restaurants.

"Payroll gains were broad-based, appearing even in COVID-sensitive sectors," said Daniel Zhao, Glassdoor senior economist. "Retail [61,000 new jobs] and transportation and warehousing [54,000 new jobs] also saw significant job gains despite the end of the holiday season, perhaps as employers wary of labor shortages converted more seasonal workers into full-time employees."

Professional and business services added 86,000 jobs and temporary help service jobs rose by 26,000. Employment in local government education rose by 29,000 and employment in health care continued to trend up—by 18,000—over the month.

Unemployment Edges Up

The unemployment rate ticked up in January to 4 percent from 3.9 percent in December. The number of unemployed people increased to 6.5 million. In February 2020, prior to the COVID-19 pandemic, the unemployment rate was 3.5 percent, and the unemployed numbered 5.7 million.

The unemployment rate increase was due to a rise in labor force participation to its highest level since March 2020. "The labor force participation rate increased significantly from 61.9 percent to 62.2 percent, with the largest increase among African-Americans, from 60.8 percent to 62.0 percent," Pollak said.

The employment-to-population ratio, both for the overall population and prime-age workers ages 25 to 54, also rose. "The speed of recovery might have slowed a bit over the month for the prime-age employment ratio but it's still on track to recover to pre-pandemic levels by this summer," Bunker said.

The number of people considered long-term unemployed—those jobless for 27 weeks or more—declined to 1.7 million in January. This total is down from 4 million a year earlier.

A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons fell to 7.1 percent, down from 7.3 percent. Those working part-time for economic reasons fell by 212,000 in January, with the total level down 37 percent from a year ago.

"The number of people working part-time for economic reasons continued to fall, reaching levels not seen since 2001," Pollak said. "Those figures are particularly remarkable for a month in which 15 million people contracted coronavirus and substantial labor market disruption ensued."  

Wages Climb

Average hourly earnings in January increased by 23 cents to $31.63. Over the past 12 months, average hourly earnings have increased by 5.7 percent. The rate of wage gains, however, still lags inflation, which was running around 7 percent in December.

"Private sector wage growth is the predictable outcome of the tightest labor market on record, where there are almost two job openings for every unemployed American and employees are quitting their jobs in record numbers," Pollak said. "Wage growth was highest in leisure and hospitality, followed by professional and business services, and health care and educational services."

Wahlquist noted that while wages are rising, labor shortages continue. "The good news for job seekers is that 'Help Wanted' signs are out all over America and talent continues to be in high demand."

Omicron Fade

The latest variant of the virus did have an effect on the labor market. The BLS reported that 6 million people were unable to work because their employers were closed or lost business due to the pandemic, up from 3.1 million in December.

But with the omicron wave now ebbing rapidly, the disruption from it is likely to begin fading in the coming months, Zhao said. "Ultimately, this report signals that the job market recovery is plowing forward, despite omicron headwinds. Employer demand remains high, and hiring is likely to remain strong, especially once omicron fades."

Frankiewicz said that she'd like to see recent positive trends continue. "The lasting legacy of the pandemic should be good wages, work-life balance and skills development for all."