Jobless Claims Show Omicron Recessing; Productivity Way Up

·4-min read

Thursday, February 3, 2022

Sandwiched between Wednesday’s private-sector payroll report from ADP ADP and Friday’s non-farm payrolls from the U.S. Bureau of Labor Statistics (BLS) in the first week of a new month is today’s weekly Initial Jobless Claims report — the most fine-tuned of all employment reads. We saw a nice drop to 238K new claims from the 245K expected, and a healthy step lower than the upwardly revised 261K, which itself was down from the previous week.

These reports, coming as they do on a weekly basis, bring a closer articulation to the affects of the Omicron variant on the U.S. labor force, of which we saw the impact in ADP’s report yesterday and expect to in the BLS release tomorrow morning. The good news is, we’re coming down in new claims from the previous week and the 290K new claims the week before that — at this stage, we’ll call the week of January 17th “peak Omicron.”

Continuing Claims complicate matters a tad, in that they are reported a week in arrears from initial claims, are telling an even better story: 1.63 million on the headline remains in our pre-pandemic range, down from the downwardly revised 1.67 million the week before. Going by what we saw from initial claims this morning, we might expect an even lower headline number on continuing claims next week. All good news from this vista.

Tomorrow’s BLS report threatens to post a disappointing headline, resembling what we saw from ADP yesterday, which counted -301K new jobs last month from +200K expected. Currently, non-farm payroll estimates tomorrow have shrunk to around +150K from the +199K reported for December, which itself was a disappointment from expectations.

Aside from the Omicron effects, we’ve seen a distinct pullback in monthly job gains from last summer’s million-plus per month, which may show sectors like Leisure & Hospitality filling up. That said, the biggest drop in jobs from ADP this week came from the very same industry; we might expect a bounce-back if/when Omicron is safely in our rearview mirror.

In other news, Q4 Productivity leapt to +6.6%, an increase over expectations of 250 basis points, and a strong turnaround from the -5.0% in Q3, which was revised from -5.2% earlier reported. Output gained major traction in the quarter, jumping to +9% from +2% the previous quarter. And Unit Labor Costs, which had been expected to grow another +1.0% in Q4, bumped up a mere +0.3%, and well off the +9.3% revision to Q3, which was lowered from the +9.6% in the prior report.

These amount to very good news — surprisingly so — to those looking ahead to U.S. economic growth in 2022. We spent most of last month investing as though inflation was going to cast a pall over growth, with the Fed helping stagnate momentum by sopping up runaway costs with higher interest rates. But this morning’s data suggests — as other reports lately have, as well — that higher labor costs, and thereby higher inflation overall, may be on the wane, or at least reaching the top of the parabolic curve.

Should we continue to see slowing costs related to employment, goods, etc., this might change the outlook for economists — the most important of which are the voting members of the Fed. We have plenty of data to receive and sift through before the Fed’s next meeting in mid-March; we’ll keep an eye on how much of it shows inflation metrics curbing on their own, and how much work the Fed will need to do to bring us in line. So far, we’d say the Fed may need to change tack yet again.

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