US private hiring slumps in ominous labour market sign

[WASHINGTON] US private companies shed jobs last month for the first time since December 2020 as the Omicron coronavirus variant again complicated business - a potential harbinger of bad news for the upcoming government employment report.

Data from payroll services firm ADP released on Wednesday said private employment declined by 301,000 in January, far worse than analysts expected, which the survey blamed squarely on the new virus strain.

"The labour 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," ADP chief economist Nela Richardson said.

The data bolstered fears that the Labor Department employment report due out Friday will indicate weak hiring in January, perhaps as low as 200,000 or even a contraction, caused by the renewed onslaught of Covid-19 infections hitting the world's largest economy.

"We forecast the US payroll count turned negative in January with a net loss of 45,000 jobs - the first decline in over a year," Lydia Boussour of Oxford Economics said, although she expects that seasonal adjustment factors will "soften the blow."

Beyond a gauge of the labour market's recovery from the mass layoffs that marked the start of the pandemic, the government report will also be watched to see if it changes minds at the Federal Reserve.

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Central bank officials have strongly indicated they will hike interest rates in March for the first time since the pandemic began, in a bid to fight inflation that hit a record high last year.

However, Boussour predicted that "a temporary pullback in the payroll count won't alter the Fed's bullish view of the labour market," where wages have grown and the unemployment rate has declined.

SERVICE SECTOR HIT

On top of the fall in January payrolls, ADP revised hiring in December down by 31,000.

Small businesses bore the brunt of the employment downturn last month, losing 144,000 positions, the ADP data said, which Richardson noted erased most of the job gains made in December 2021.

Large-business employment fell 98,000, while medium-sized businesses lost 59,000 positions.

The service sector accounted for the majority of the job losses, with overall employment falling 274,000.

Most severely hit was the leisure and hospitality industry, which has borne the brunt of past layoff waves and lost 154,000 positions in January.

Ian Shepherdson of Pantheon Macroeconomics however said ADP's data can differ widely from the government payroll report, and Omicron's severity is likely to influence both.

"These data, and probably February's too, will always be asterisked; they tell us nothing about the underlying state of the labor market," he wrote in an analysis.

"The first fully post-Omicron report will be for March, and recent history suggests all the lost ground won't be recovered immediately."

Economist Joel Naroff said the private sector jobs data does not point to a sustained slowdown in the labour market, but rather a reversion to a more normal pace of hiring as the economy gets over the Covid-19 downturn.

"I don't expect a negative employment number to print on Friday. It looks like hiring and spending are starting to settle down to more typical growth rates," he said in a note.

Pointing to recent data showing an increase in job openings, Naroff said: "With demand for workers still robust, it is hard to argue that hiring would suddenly fall off the cliff." AFP