Barnett and Company

January Jobs Report: Half Full Or Half Empty?

The US Department of Labor released the January employment report last Friday, providing plenty of fodder for both sides in the debate over additional economic stimulus. The headline number from the report was a net addition of just 49,000 nonfarm jobs, more evidence that the recovery in employment has essentially stalled out since October. Meanwhile, the unemployment rate fell from 6.7% to 6.3%, but the drop was almost entirely due to discouraged workers giving up the job hunt. On the plus side, average hourly wages increased by 5.2% since last January.

In a nutshell, the jobs recovery is well underway but distinctly uneven, a pattern that was already evident in the aftermath of the 2008 recession but exacerbated by the Covid-19 pandemic.

The US Bureau of Labor Statistics has been collecting and reporting information on the state of the American workforce since 1884. Every month, the Bureau repeats a monumental undertaking in contacting thousands of businesses and households to collect data on jobs and wages, with the collated picture released to the public on the first Friday of the following month. This Employment Situation Summary, widely referred to as the “Jobs Report”, is eagerly anticipated as a real-time reading of economic health or stress and actually consists of two separate large-scale surveys.

The “Household Survey” is a sample of 60,000 individual households that yields the most familiar statistic: the unemployment rate. Although the unemployment rate declined in January, the Household Survey also reported that 400,000 people left the workforce and are no longer counted as “unemployed”. There are roughly 10 million fewer jobs in the US economy than existed before the pandemic, and as evidence of its continuing affliction, 4.7 million Americans were prevented from even looking for work due to the effects of the pandemic.

As might be expected, the pace of recovery is heavily dependent upon education level. Workers with a bachelor’s degree or higher have seen their unemployment rate decline to 4.0%, while the rate for those without a High School diploma is stuck above 9%.

Of even greater concern, the report found that the number of “long-term” unemployed, out of work for 27 or more weeks, continued to climb and stands at almost 40% of all unemployed persons, a stubbornly high level only seen once before (2011) since data collection began in 1948.

The other major piece of the jobs report is a polling of almost 700,000 individual workplaces referred to as the “Establishment Survey.” In addition to tabulating the number of new jobs created or lost according to payroll data (gain of 49,000 for January), the Establishment Survey also slices and dices by industry group to refine the picture. It is here that the disparate pace of recovery becomes most evident.

Professional and business service employment continued to improve, adding another 97,000 jobs including 81,000 from temporary services. But the usual suspects were hammered again: leisure and hospitality (think hotels, restaurants, and entertainment venues) bled another 61,000 jobs after hemorrhaging 536,000 in December. Workers in the services sectors have been the hardest hit and often fall into the lowest educational and socioeconomic quartile as well and are likely to face the longest period of recovery. On balance, leisure and hospitality workers account for nearly 40% of all the jobs lost since the onset of Covid.

While there is some good news in the report, including a modest increase in both average pay and hours worked, the latest employment summary highlights the uneven recovery in the employment picture. Combining those officially classified as unemployed with those who have quit looking and those who have suffered reduced hours, 15% of the workforce has been injured by the pandemic. Yet for the majority including those who were able to work from home, the financial impact was minimal. For 75% of Americans the jobs recession is essentially over, but for those in the lowest 25% of the income strata, employment is still 20% below pre-pandemic levels. 

The jobs report contains some good news but serves as a reminder that real recovery across the economic spectrum awaits the widespread distribution of the vaccines and the vanquishment of the virus.

Christopher A. Hopkins, CFA


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