January Jobs Report Preview: An Economic Recovery Reboot

February 2, 2021

This Friday, the Bureau of Labor Statistics will release the January jobs report—the first picture of the 2021 labor market. While the recovery reversed course in December, the January jobs report is likely to show the economic engine turning over again. These are the 3 things I’m watching for on Friday:

  • Friday’s report is likely to show an economic recovery rebooting after the pandemic-forced shutdown in December. However, the ongoing pandemic is likely to keep job gains and any improvement in unemployment muted.
  • An additional aid package could have a significant impact on our medium-term economic trajectory. Accelerating vaccine distribution would move the finish line closer while maintaining continuity of benefits will be important to keep Americans afloat.
  • Friday’s report will also be a final look at the pre-pandemic economy. Benchmark revisions through March 2020 are expected to show that 2019 job gains were slower than originally reported even before the pandemic struck.

An Economic Recovery Reboot

At this point, the third wave of the pandemic appears to be receding. Despite the still-severe pandemic, it’s likely that the economic recovery rebooted in January with modest job gains. 

While the labor market contracted by 150,000 jobs in December, those losses were primarily concentrated in leisure & hospitality (-498,000 jobs) and education (-82,700 jobs). Many other industries saw at least muted job gains, suggesting that the businesses now are better positioned to weather the pandemic without further layoffs. This raises the likelihood that job gains will continue outside of directly impacted service industries.

Overall, the labor market remains exceptionally weak. It’s likely that the unemployment rate will remain unchanged at 6.7 percent in January with over 9 million fewer Americans on payroll than in February 2020. The ongoing pandemic means that restarting the recovery will feel like trying to start a fire with wet tinder.

Path to Recovery

As the third wave of the pandemic wanes, the next few months will be about building a bridge until later in the year when the vaccine will hopefully be more widely distributed. While the positive impacts of the December relief bill are just starting to show up in economic data, the negative consequences of the delayed bill are already visible with interrupted UI benefits for millions of Americans. 

Already, Congressional negotiations are beginning on an additional relief package. While the exact impact of another package will depend on the contours of the deal, getting the pandemic under control and accelerating vaccine distribution are the best economic stimulus that the new Biden administration could provide.

Benchmark Revisions Likely to Show Slowing Economy in 2019

In this month’s jobs report, the Bureau of Labor Statistics will release its benchmark revisions for the March 2019 to March 2020 period. The initial estimates released last August forecast a modest downward revision in employment of 173,000 jobs for March 2020. 

Graph of CES benchmark revisions in last 12 years. 2020 estimated revision of 173,000 would not be unusually large, especially compared to -489,000 in 2019 or -902,000 in 2009

In hindsight, the labor market in March 2020 was poised to drive off a cliff. This Friday’s revisions are more of a backwards-looking view, telling us about the state of the economy before the full force of the pandemic was felt in the United States. The downward revisions may more concretely show a slowdown in the labor market in 2019. Even a small downward revision to job gains in 2019 may drive the year’s job gains to the lowest level since 2011, when the recovery from the Great Recession was just finding its footing.

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