Stalling US labour market supports push for massive stimulus package

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. employment growth rebounded moderately in January and job losses in the prior month were deeper than initially thought, strengthening the case for a sizable relief package from the government to aid the recovery from the COVID-19 pandemic.

The Labor Department's closely watched employment report on Friday showed job losses in manufacturing and construction, two sectors which have been propping up the economy. There were further job losses at restaurants and bars. Retailers and employers in the transportation industry also laid off workers.

Millions of Americans are experiencing long bouts of unemployment and permanent job losses, while others have given up searching for work. President Joe Biden is pushing the U.S. Congress to pass a $1.9 trillion recovery plan, which has been met with resistance from mostly Republican lawmakers, now worried about the swelling national debt.

The House of Representatives prepared on Friday to take up a budget measure that would let Democrats push the massive package through Congress in coming weeks without Republican support.

"The weakness portrayed in today's labor report opens the door for the Biden administration to push forward with a higher spending package and provide relief for many Americans and businesses that continue to struggle with the pandemic," said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Nonfarm payrolls increased by 49,000 jobs last month. Data for December was revised to show 227,000 jobs lost instead of 140,000 as previously reported. Employment is 9.9 million jobs below its peak in February 2020. The economy created 250,000 fewer jobs in the 12 months through March 2020 than previously estimated, the government also reported.

The Congressional Budget Office has estimated employment would not return to its pre-pandemic level before 2024. Economists polled by Reuters had forecast payrolls rising by 50,000 jobs in January.

December's drop in payrolls was the first in eight months and came amid renewed restrictions on businesses like restaurants and bars to slow a resurgence in coronavirus infections. Though those curbs on businesses continued into the first half of January, there is reason for cautious optimism as some employment measures have been stabilizing since the second half of January as authorities began easing restrictions.

The government surveyed businesses and households for January's employment report in the middle of the month. It noted the response rate to the survey was "slightly below average."

Nearly $900 billion in additional relief money provided by the government at the end of December and the acceleration in the distribution of vaccines for the virus will likely lift hiring in the months ahead. In addition, the pace of COVID-19 infections appears to have peaked in early January, a trend that could give a lift to hiring in the months ahead, should it hold.

Infections hit a one-day record of roughly 300,000 in early January but by month's end were averaging closer to 100,000 a day, with most of the country seeing a downward trend, according to a Reuters tally.

"We are hopeful that January will mark the low point for 2021 job creation," said James Knightley, chief international economist at ING in New York. "Much stronger jobs figures are likely from the second quarter onwards."

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

LONG ROAD TO RECOVERY

Last month, manufacturing payrolls decreased by 10,000 jobs, while employment at construction sites dropped by 3,000.

Retailers shed 38,000 jobs and healthcare employment declined by 30,000. The transportation and warehousing industry lost 28,000 jobs. There were 61,000 job losses in the leisure and hospitality sector. But employment in professional and business services increased by 97,000.

Government payrolls rose by 43,000 jobs, lifted by gains in state and local government education.

Though the unemployment rate dropped to 6.3% in January from 6.7% in December, that was because many people gave up looking for work. The jobless rate was also pulled down by people misclassifying themselves as being "employed but absent from work." Without this misclassification, it would have been 6.9%.

Just over 4 million Americans have been unemployed for more than six weeks, accounting for 39.5% of the jobless in January. The ranks of those who have permanently lost their jobs increased to 3.5 million from 3.4 million in December.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, dipped to 61.4% from 61.5% in December. The participation rate has declined significantly during the pandemic, with women accounting for the biggest share of dropouts.

That has been attributed to difficulties securing childcare as many schools remain closed for in-person learning.

"There is still an enormous amount of work to do to get back to maximum employment," said Chris Low, chief economist at FHN Financial in New York.

The report also underscored the so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out. The continued decimation of lower-paying jobs boosted annual wage growth to 5.4% from 5.1% in December.

"Businesses and the administration will need to work together to implement policies and programs which close this diverging gap and ensure displaced Americans can return to the workforce," said Karen Fichuk, Randstad North America chief executive officer.

 

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)