The intense debate over whether there needs to be a large fiscal stimulus package was supplemented by a weak U.S. employment report for January that saw an anemic gain of 49,000 jobs while 406,000 people exited the workforce.
That exodus of workers was the primary catalyst for a decline in the unemployment rate to 6.3% announced by the Labor Department on Friday.
The jobless rate fell to 6.3% mainly because 406,000 people left the workforce.
Our pandemic-induced estimate of the unemployment rate implies a minimum rate of 7.5%, which we readily acknowledge is likely much higher – as much as 1% – because of those who have dropped out of the workforce and face significant durations of unemployment.
This all suggests that a robust policy effort needs to be put in place before fiscal fatigue sets in and constrains the ability of policymakers to act.
On the heels of the downward revision of the December report to a loss of 227,000 jobs, this data strongly supports the arguments of those who recommend that the next round of policy aid be large, bold and sustained.
One cannot look at this data and argue that robust fiscal aid is going to result in inflation or a major shift in interest rate policy by the Federal Reserve. In fact, it tends to underscore the Fed’s recent statements that strongly imply the need for robust fiscal action and a zero interest rate policy until 2024.
The January report also brings to a close the Trump-era data on the domestic labor market that ends with a whimper and not a bang. The U.S. economy is short 2.9 million jobs relative to where it was in January 2017.
Economic historians will have plenty of grist for the mill on whether enough was done early in the pandemic to prevent what was a labor market catastrophe in March and April when nearly 22.4 million people lost their jobs. Following the revisions to the Bureau of Labor Statistics survey, the U.S. economy is short by about 9.9 million jobs relative to the peak last February.
Beneath the headline, this is a weak jobs report. Outside the gain of 97,000 jobs in business and professional services, of which 81,000 were temporary positions, it is hard to make the case that the labor market is experiencing a robust recovery.
Outside of that category, the other major high-paying sectors all experienced modest declines. Goods-producing jobs declined by 4,000, construction by 3,000 and manufacturing by 10,000.
While private service-providing jobs advanced by 10,000, mostly because of the increase in temporary hiring, there was a loss of 50,000 positions in trade and transport, 38,000 in retail trade and 61,000 in leisure and hospitality. The information sector added 16,000 workers, financial workers increased by 8,000 and the government added 43,000 workers to start the year.
Average hourly earnings increased 0.2% in January and are up 5.4% on a year-ago basis. But this is a function of compositional effects because of lower-end workers losing jobs and higher-end workers getting compensation increases in the new year. This data should not be construed as a risk to the inflation outlook through the wage channel.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
