After a month of job losses in December, the economy added 49,000 jobs in January with the unemployment rate declining to 6.3%. Overall, the report was a disappointment as expectations were for an increase of 105,000 jobs.
It was even more disappointing considering that previous month's readings were revised lower, longer-term unemployment ticked higher, and strength in industries like manufacturing and construction weakened. An optimistic assessment of December's and January's poor results is that these job losses are more reflective of spiking COVID case counts rather than true weakness.
Inside the Numbers
While the unemployment rate did fall more than expected to 6.3% vs expectations of 6.7%, this was attributed to people dropping out of the labor force. The labor force participation rate declined to 61.4% as 406,000 workers left the labor force. U6 which includes discouraged workers and part-timers, who'd like to work more, came in at 11.1% a drop from 11.7% in December.
Revisions to previous months was also another negative development. The initial reading for December was a loss of 140,000 jobs, however, this was revised to a drop of 227,000. November's gain of 336,000 was reduced to a gain of 264,000. Overall, the employment picture remains tenuous.
As the coronavirus first made its way to the U.S., the economy shed more than 20 million jobs. At this point, a little more than half of these jobs are back. It's likely that another couple of million will be added as certain parts of the economy open back up again. However, at the current pace of recovery, it will take years for the economy to return to pre-COVID employment levels.
In terms of various sectors, industries like hospitality, travel, and tourism remain the most affected. In January, these industries lost 61,000 jobs which followed a 536,000 drop in December. However, there's a light at the end of the tunnel as case counts seem to have peaked. The weather is going to start improving and most importantly, the population is starting to get vaccinated.
The strongest sectors were services which added 97,000 and local governments which added 49,000. Retail declined another 38,000 as in-person shopping remains depressed.
Stock Market Impact
The stock market rose higher as did bond yields as this report increases the odds of President Joe Biden's $1.9 trillion stimulus package passing. The argument of opponents is that the previous stimulus is enough, or we need to wait to see its impact. This report makes it clear that the economy continues to require support.
In a sense, the stock market is in a "bad news is good" situation as negative economic news increases the odds of more monetary and fiscal support. There's also broad public support for the package. Biden is also determined not to make President Barack Obama's mistake in passing down a watered-down bill that prevented a strong recovery which negatively affected the midterms. Therefore, he seems willing to go ahead with passing the bill through reconciliation with no Republican votes.
