Private Sector Jobs Were Added In January

The economy is no longer quickly gaining jobs like it was at the beginning of the expansion, but that’s okay because we recognize this is a COVID-19 related slowdown which will end as hospitalizations and cases plummet. We might see sharp improvements in the labor market as early as March. The current weakness is just biding time before the 2nd step of this recovery. The goal is simply to avoid sharp job losses.

With that framework in mind, the January ADP report was very strong. It showed 174,000 jobs were added which was above last month’s 78,000 decline in private sector jobs. Any increase this month is a major win. The top forecaster for the ADP report, Continuum, predicted an 85,000 decline. The BLS consensus is for 50,000 overall jobs added and 35,000 private sector jobs added. We’ve been saying it could be above or below zero.

As you can see from the chart below, the ADP report has been too negative which implies the BLS report could be solid this Friday. The worse the report is, the more likely a large stimulus will be passed. The longer the delay before one passes, the more likely the money will go into reopening industries like restaurants.

Specifically, 51,000 jobs were created by small firms; 84,000 were created by medium firms, and 39,000 were created by large firms. The goods producing sector added 19,000 jobs and services created 156,000 jobs. The strongest industry was education & health with 54,000 jobs added and the weakest industry was inflation which lost 2,000 jobs. This type of report would be good late in the cycle when the unemployment rate is low. Instead, it’s good now because COVID-19 had a severe impact on the economy. We think results will be better soon because the 7 day average of new cases per day is down 45% from the peak on January 11th and hospitalizations are down 31% from the peak on January 6th.

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