In an inauspicious, albeit wholly predictable, development, ADP said Wednesday that private sector employers shed 301,000 jobs in January, underscoring the impact of the Omicron wave on the labor market and amplifying the White House’s persistent warnings about the likelihood of a disappointing NFP report.
Despite the Biden administration’s efforts to guide the market, it didn’t feel like the message was getting through. Maybe the ADP print will serve as a wakeup call.
The headline print was a massive miss (figure on the left, below). Consensus expected a 180,000 job gain. The range, from 35 economists, was -350,000 to 400,000. So, at least one person wasn’t surprised.
Downward revisions to December and November were insult to injury.
Do note: Outside of the pandemic, January’s headline ADP print was the worst since the financial crisis (figure on the right, above).
“The labor market recovery took a step back at the start of 2022 due to the effect of the Omicron variant and its significant, though likely temporary, impact to job growth,” Nela Richardson, ADP’s chief economist said.
With respect, I’m not sure “a step back” is the best way to describe a miss of that magnitude, although you could (easily) argue that the pandemic is proof that the data is never “wrong” — only forecasters are.
In any case, losses were most acute among small businesses, but declines were seen across the board. The leisure and hospitality figures were cringeworthy. The sector accounted for more than half of the headline decline (figure below).
“Leisure and hospitality saw the largest setback after substantial gains in fourth quarter 2021, while small businesses were hit hardest by losses, erasing most of the job gains made in December 2021,” Richardson went on to say.
Obviously, some of this will reverse in February, but it nevertheless highlights the kind of “two-way risks” that Fed officials have been so keen to emphasize this week in an apparent effort to discourage the market from fully pricing a 50bps hike at next month’s FOMC meeting.
The chance of a negative NFP print is now very real.
