Shows Manufacturing Continues to Fight an Uphill Battle

• Private-sector employment fell by more than 300,000 in January, according to the ADP National Employment Report. This was the first decline in more than one year.
• Job losses were widespread across industries and firm sizes.
• The omicron variant was behind the job losses.
• PNC expects Friday’s BLS jobs report to show a drop in employment of 400,000 for January, with the unemployment rate up to 4.2%.
• The job market should bounce back quickly as the omicron variant fades.

Private-sector employment fell by 301,000, according to the ADP National Employment Report, based on records from the payroll-processing firm. This was the first decline in employment in the ADP survey since December 2020.

There was broad-based weakness throughout the report. Employment was down by 27,000 in goods-producing industries, including drops of 10,000 in construction and 21,000 in manufacturing, although employment rose by 4,000 in natural resources and mining. Employment declined by 274,000 in private service-providing industries, including declines of 154,000 in leisure/hospitality services, 62,000 in trade/transportation/utilities, and 15,000 in education and healthcare.

There were job losses of 144,000 in firms with 49 or fewer workers, 59,000 in firms with 50 to 499 workers, and 98,000 in the largest businesses.

The omicron variant hit the labor market hard in January, with big job losses in the private sector. The job losses were likely due to a combination of factors: workers taking time off because they had COVID or were exposed and needed to isolate; workers taking care of family members with COVID or watching children who were home from school or daycare; workers concerned about catching COVID; and weaker demand in some industries, such as restaurants and hotels, as consumers stayed home with the surge in omicron cases.

According to a biweekly survey from the Census Bureau, some 14 million Americans did not work in late December and early January because they had COVID, were caring for someone who had it, or because they had children at home from school or childcare.

The good news is that the job market should quickly bounce back as the omicron variant fades. Underlying demand in the economy is still strong, and businesses are still trying to hire. But the January drop in employment is another reminder that the economy will not fully return to normal until the pandemic is over.

When the Bureau of Labor Statistics releases the government’s official jobs report on Friday, PNC expects the survey of businesses to show a drop in employment of 400,000 in January, including a decline of 375,000 in the private sector. PNC expects that the unemployment increased to 4.2% in January, from 3.9% in December.  Still, PNC is forecasting monthly job growth of around 350,000 over the course of 2022 as the labor market rebounds after omicron fades.

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