People line up outside a career center for in-person appointments in Louisville, U.S. April 15, 2021. WASHINGTON, February 2, Reuters -- U.S. private payrolls fell for the first time in a year in January as soaring COVID 19 infections disrupted business operations, raising the risk of a decline in employment that would cause a temporary setback to the labor market.
The surprise drop in payrolls in the ADP National Employment report on Wednesday was across all industries and business sizes. The economy lost momentum as coronavirus cases, driven by the Omicron variant, raged across the nation last month, which added to a slowdown in manufacturing activity last month.
The job market should bounce back quickly as the Omicron variant fades, said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.
There is still strong demand in the economy, and businesses are still trying to hire. Private payrolls decreased by 301,000 jobs last month, the first drop since December 2020, after increasing by 776,000 in December. Economists polled by Reuters had predicted that private payrolls would increase by 207,000 jobs.
The leisure and hospitality sector led the decline in private payrolls, with 154,000 job losses. Trade, transportation and utilities lost 62,000 jobs. Manufacturing employment decreased by 21,000 jobs. Construction lost 10,000 jobs due to the freezing temperatures last month.
Employment at small businesses fell by 144,000 jobs, while medium enterprises laid off 59,000 workers and large companies reduced their payrolls by 98,000.
The ADP report was jointly developed with Moody's Analytics and published on Friday before the release of the Labor Department's more comprehensive and closely watched employment report for January. It has a poor record in predicting private payrolls count in the Department's Bureau of Labor Statistics employment report because of methodology differences.
The ADP report counts all active workers as employed regardless of whether they are paid or not during the survey week. Even if they still have a job with their company, people who are out sick or in quarantine and do not get paid during the payrolls survey period are counted as unemployed according to the BLS survey of establishments.
Some workers were laid off because of reduced demand, according to the decline in private payrolls in the ADP report. Many people were not able to find workers because of the soaring infections, with businesses probably unable to find workers at home.
Wall Street stock prices were trading higher. The dollar fell against a basket of currencies. In January, economic growth slowed, with an Institute for Supply Management survey showing its national factory activity falling to a 14 month low.
The economy grew at a 6.9% annualized rate in the fourth quarter, helping to boost overall growth in 2021 to 5.7%, the strongest performance since 1984. The growth estimates for the first quarter are mostly below a 2.0% rate.
Between December 29 and January 10th, 8.8 million people reported not being at work because of coronaviruses, according to the U.S. Census Bureau's Household Pulse Survey. The nonfarm payrolls count for January was down on Friday, and some economists are worried about a decline in January's payrolls.
Non-farm payrolls were projected to increase by 150,000 jobs last month, according to a survey by the Reuters of economists. Estimates range from a decrease of 400,000 to an increase of 385,000. The economy created 199,000 jobs in December, the fewest in a year.
The White House is trying to prepare for a disappointing payrolls number, with several officials offering a preview of the report.
Jared Bernstein, a member of the White House's Council of Economic Advisers, told CNN this week that the underlying strength of the economy is what we think is the key point. The caseloads are turning over because of the strength of the job market. According to a Reuters analysis of official data, the United States has an average of 433,601 new COVID 19 infections a day, a decline from the more than 700,000 in mid-January.
Demand for labor is strong, with fewer workers available. There were 10.9 million job openings at the end of December.
Economists believe that the Federal Reserve will view a decline in payrolls in January as a blip, given the near-record vacancies.
The Fed said last week it was likely to raise interest rates in March. Economists expect as many as seven hikes this year to tame inflation.
The labor market is rebounding as the Omicron wave subsides. The first-time applications for unemployment benefits have retreated from a three-month high.
Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania said that the labor market is still in very good shape, regardless of what numbers print.