“Unexpectedly,” says CNBC. No kidding. Economists had scaled back expectations in light of the impact of Omicron on commercial activity, but ADP’s report of a massive cutback on labor calls into question more assumptions than just job-report estimates:
Companies cut jobs in January for the first time in more than a year as the spread of the Covid omicron variant appeared to hit hiring, payroll processing firm ADP reported Wednesday.
Private payrolls fell by 301,000 for the month, well below the Dow Jones estimate for growth of 200,000 and a marked plunge from the downwardly revised 776,000 gain in December. It was the first time ADP reported negative job growth since December 2020.
That’s a shift of over one million jobs net within a single month. Of course, ADP turned out to be wildly off to the upside in December in relation to the official Bureau of Labor Statistics jobs report, which only showed 199,000 jobs gained net in the month. Joe Biden and his administration have to hope that ADP misses as much to the downside on Friday, when the next BLS report will drop.
This does look Omicron related, though. Every category of business lost ground in January, but half of the job losses came out of the most customer-facing industry in the report:
The pandemic-sensitive leisure and hospitality industry was responsible for more than half the decline, as companies reported a drop of 154,000. Trade, transportation and utilities cut 62,000 while the other services category declined by 23,000.
Manufacturing also lost 21,000 positions, while education and health services reported a drawdown of 15,000 and construction fell by 10,000.
ADP does not break retail jobs out as a separate category in its monthly report. Presumably they’re folded into Leisure & Hospitality, but some do fall under their Franchise Jobs category, which actually had a slight gain of 1600 jobs last month. Franchise restaurants were the big gainer at +6000, and franchise auto parts and dealers picked up 4800. The numbers don’t quite add up in this separate breakout, so take some of those with a grain of salt.
The implication is that whatever created this massive job loss in ADP’s estimate — Omicron, inflation in labor costs, whatever else — hits smaller and independent businesses a bit harder than larger chains. That’s not exactly news either, but it reinforces the point that smaller businesses are less flexible in dealing with outside pressures than businesses with economies of scale that allow for better management of negative impacts. That’s why it’s important from a policy standpoint to ensure that outside interventions are minimal and are designed to avoid exacerbating that structural inequity.
We also see this same problem in the macro look at the overall ADP picture. Small businesses lost nearly three times as many jobs as medium business and nearly 40% more than large businesses in January. That’s a bad trend, and it calls into question whether this is really related to Omicron, or whether it’s the result of Omicron-related government interventions that pushed already-stressed small businesses over the edge. They aren’t the same thing, especially when Omicron produces far fewer serious-to-severe outcomes than Delta — and vaccinated/boosted people have far less risk of those on top.
Bear in mind, though, that official BLS numbers have not had much relation to ADP reports of late. Economists like to use ADP’s monthly figures as a leading indicator on the official jobs report, but I’d take that with a big grain of salt for now. We could be seeing late-breaking adjustments to personnel shifts from the last month or two in ADP’s data, or just simply statistical anomalies. That’s been the pattern for a while at ADP, and the safest bet is that we’ll see this missing the BLS mark by a wide margin. The big question will be in which direction ADP will miss that mark, though.
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