MNI INTERVIEW: Jan Hiring Likely Fell-St Louis Fed Economist

A record surge in Covid-19 infections likely caused U.S. hiring to contract in January for the first time in over a year, according to the St. Louis Fed's employment model, economist Max Dvorkin told MNI, adding that he expects payrolls to make a strong recovery in February.

The Fed bank's coincident employment index using high-frequency data from scheduling software company Homebase predicts a seasonally-adjusted decline of 260,000 jobs for January as measured by the BLS's household survey. But that likely overestimates the drop in hiring because Homebase doesn't count workers who are absent due to illness whereas the BLS survey does, Dvorkin said.

"The employment loss is likely magnified, the reason being clocking in and out didn’t happen for a lot of people. But other pieces of evidence still suggest employment probably had a negative evolution last month," Dvorkin said.

Initial jobless claims rose slightly, reversing an earlier trend decline, and the U.S. Census Bureau's Household Pulse Survey also suggests employment was negatively affected by Omicron, he said. Roughly 8.8 million people weren't working in mid-January due to coronavirus, nearly twice as many as at the peak of the Delta wave, the survey found.

PARTICIPATION LIKELY STUCK

Homebase data since mid-January has yet to show a strong rebound but Dvorkin sees the Omicron-related decline to be temporary and expects the labor market to regain its trend next month.

"This last wave was extremely intense, but in many cases it was shorter lived. After a few days, a lot of people were able to come back to their workplace. So this time around it is likely that we’ll go back to the trends we were seeing in November and December by February."

The labor market is "very, very close" to full employment, Dvorkin said, predicting that unemployment would stay below 4% for months. It dipped to 3.9% in December.

Workforce participation, which has fallen significantly during the pandemic, isn't likely to recover to pre-pandemic levels soon, he added. Older workers are staying retired while for many prime-age workers, "it's possible that the pandemic has disrupted how people organize in their homes, with child care being one variable."