January jobs slow slightly, but impact of big layoffs unclear

Economists expect slightly slower but still strong job growth in January, while the impact of corporate layoff announcements is unclear.

Consensus forecasts predict 187,000 new non-farm payrolls in January, compared to 223,000 created in December, according to Dow Jones. The jobs report will be released at 8:30 a.m. ET on Friday.

The unemployment rate should increase slightly, from 3.5% to 3.6%. Average monthly wage growth is expected to have held steady at around 0.3% in January, while declining on an annual basis, from 4.6% to 4.3%.

At major tech companies, including Alphabet and Facebook, layoff announcements have affected tens of thousands of workers. Other non-tech companies have also recently announced workforce reductions, including FedEx, Dow and Hasbro. But economists say it’s unclear how much of that will show up in labor numbers.

Tom Simons, money market economist at Jefferies, expects 260,000 jobs were added in January, but he said the number could be even higher.

“The number is not really the number of jobs created, but the number of fewer workers who have been made redundant,” he said. “Given what we’ve seen in a number of data releases over the month and over the past two weeks, companies are doing their best to retain as many jobs as possible…I think they’re looking really about firing workers through attrition, people quitting, people retiring.”

The jobs report is critically important to the Federal Reserve, which has been trying to slow the economy — and inflation — by cooling the boiling labor market. So far, unemployment is still more than a percentage point lower than the Fed forecast at the end of 2023.

Even so, Simons expects markets to react more to a lower-than-expected number of new jobs rather than a higher number.

“The market is so desperate to find a reason why the Fed is going to pivot in anything. The market will be very happy to see the first really weak jobs report,” he said. A higher-than-expected number could be seen as a simple outlier, he added.

Fed Chairman Jerome Powell surprised markets on Wednesday with somewhat dovish remarks. One such comment was his view that “the economy can perhaps return to 2% inflation without a really significant slowdown or a very large increase in unemployment.”

Goldman Sachs economists forecast a payroll increase of 300,000 last month and said their consensus forecast above was based on the fact that companies do not appear to be implementing layoffs yet, despite the announcements.

Goldman economists also expect a boost from the return of striking education workers.

“While the consensus appears to be expecting a surge in corporate layoff announcements to weigh on tomorrow’s report, jobless claims have fallen further, and California WARN advisories suggest the majority of these mass layoffs have not yet been implemented,” the economists wrote in a note, referring to worker adaptation and retraining notifications that give workers advance notice of layoffs.

“Our forecast well above consensus also reflects strength in Big Data employment indicators, a pulse of favorable seasonal factors that mismatch last winter’s Omicron wave, still high and a 36,000 increase in the return of striking education workers,” the Goldman economists wrote. “On the negative side, ADP employment data pointed to possible disruptions from winter weather and flooding in California.

ADP’s private sector payrolls data released Wednesday was weaker than expected, with companies adding just 106,000 workers, compared to an adjusted 253,000 in December. But weekly jobless claims, reported Thursday, were at a nine-month low of 183,000.

Tom Gimbel, founder and CEO of LaSalle Network, said business was pretty strong for his recruitment and staffing firm in January.

“Commercial hiring is still on the rise, which is a very good sign,” he said. Gimbel said its temporary staffing activity increased 5% in January as the search was flat. He said January is usually a very slow time.

“What we’re seeing is that small and medium-sized businesses are continuing to hire,” he said.

Gimbel said he doesn’t see a recession from his perspective on the job market. Accounting and finance continue to add workers.

“In a bad economy, companies cut back on those areas,” he said. “The only negative sign there is is big tech. What we’ve seen from big tech is that they thought people would never come back to the office again. They overhired.”

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