Economists ‘hope’ the disappointing jobs report was the low point for 2021

Ethan Wolff-Mann
·Senior Editor
Updated 3 min read
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The January jobs report saw more jobs added than lost with the unemployment rate falling to 6.3% from 6.7%, but it fell short of expectations. This followed a rough December that was revised to show even worse job losses. But amid the gloomy numbers, economists saw positive signs tucked into the Bureau of Labor Statistics report out Friday.

“The January jobs report is weaker than anticipated, but we are hopeful that this will mark the low point for 2021 job creation,” ING chief international economist James Knightley wrote after the numbers crossed.

Bank of America’s team saw the job market “treading water,” but said in a note that it saw “some nascent signs of better things to come."

Knightley pointed to business surveys showing encouragement, and with lower hospitalization numbers, he expects the partial reopening in some states to make a difference. “With progress being made on vaccinations, much stronger jobs figures are likely from 2Q onwards,” he wrote.

Though this is a “significantly softer report than expected,” Pantheon’s Ian Shepherdson wrote, not all of it makes that much sense — which is why he expects a turnaround in February.

“Some of the sluggishness of payrolls seems to be due to seasonal adjustment oddities in construction,” Shepherdson wrote. Construction for instance, had numbers that reported down 3,000, whereas the trend from other data showed an increase of 40,000 construction jobs. Shepherdson also pointed to this in manufacturing, which was down according to the report, but is up according to the trends.

“We can see no reason for the sudden downshift in these sectors,” said Shepherdson, “and a reversal in February is a good bet.”

Other data makes more sense, he wrote, such as the “incremental measures” that added a few jobs since December’s big shutdown.

As he pointed out, “bars and restaurants can only close once, so the 61,000 dip in leisure jobs in January was small compared to December’s 536,000 plunge.”

Throughout the entire pandemic, there’s been a strong connection between hospitalizations and economic performance – higher rates of hospitalizations stoke fear and shutdowns and thus job losses. But like Knightley, Shepherdson sees progress, though nothing will be the same until the virus is vanquished.

“This likely will be reflected in the February payroll numbers, but the big increases needed to restore the lost 10M-plus jobs can’t come until the economy can reopen more fully and people are confident in mingling again,” Shepherdson wrote. “That likely will take until mid-year, but we hope that January’s mere 6,000 increase in private sector payrolls turns out to be the low point of the year.”

If that’s the medium-term hope, the long-term future may be tougher, TD Securities strategists wrote. Positive news notwithstanding from vaccines and lower hospitalization rates, the damage may persist for a long time.

“We still expect the labor market (and inflation) to show significant net weakening for several years,” TD’s note said.

This line shows what could have been. (Pantheon)
This line shows what could have been. (Pantheon)

To underscore the damage of the pandemic, Shepherdson included a chart of the alternate universe where Covid didn’t happen. Instead of just showing a line at February 2020’s numbers before everything changed, there’s a line that continues tracking up. As you can see in the chart, the universe we actually live in is far below that line.

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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

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