Ahead of NFP Data, Could Economic Recovery Reverse Direction?

Omicron put a massive bump in the road to America’s recovery this winter. The first signs of trouble could show up in the January jobs report on Friday, 4 February.

Goldman Sachs cites survey data indicating a surge in absenteeism during the month to expect Omicron-led temporary declines in the US Nonfarm Payroll data on the order of 500-1000K.

GS also mentions, “We estimate an unchanged unemployment rate of 3.9%—in line with consensus—reflecting likely declines in both household employment and labor force participation due to the virus wave.”

A negative surprise from US ADP Employment Change for January, to -301K versus +207K forecast, hints at a negative print of the headlines US job numbers. However, the broad consensus is still positive and hence may surprise the markets in case of an upbeat figure. This scenario should push the US dollar to consolidate the weekly losses, the biggest since March 2020.

The White House this week prepared Americans for disappointment about the jobs numbers: Jared Bernstein, a member of the White House Council of Economic Advisers, told CNN the number of jobs added at the start of 2022 could be “unusually low” because of Omicron.

The highly infectious variant led millions of workers to call in sick, or in some cases show up to work ill, in the past weeks. Economists polled by Refinitiv predict 150,000 jobs were added in January. That would make it the worst report since December 2020, when the economy shed jobs. Rising Covid infections were also an issue then.

But a closer look at the forecast shows that plenty of analysts anticipate job losses: Goldman Sachs (GS) expects a drop of 250,000, while some researchers predict a loss of 200,000 positions.

On Wednesday, the ADP Employment Report, which tracks private payrolls, showed an unexpected drop of 301,000 jobs last month. Although the ADP and government reports aren’t correlated, it is adding to the worry about what Friday’s tally might look like.

Data published Thursday showed a small improvement in claims for unemployment benefits in the last full week of January. Claims were also lower than economists had predicted. Jobless claims stood at 238,000, adjusted for seasonal swings. The number of Americans filing for benefits for at least two straight weeks edged down to 1.6 million in the week ending January 22, the Labor Department reported.

The Omicron surge began in December. But the full fallout will probably become visible in the economic data for the start of 2022.

The December jobs report showed the US economy added 199,000 jobs, but that was based on surveys conducted before the Omicron wave gathered pace. That’s why economists predict January will look worse.
It turns out that the peak of Omicron cases coincided with when the January data for the payroll survey was being collected, and if you were not at work, if you were on unpaid leave, you’re not counted as being on the payroll,” Bernstein told CNN’s Victor Blackwell in an interview Monday.

Those numbers include workers who got sick themselves, but also those who had to stay home to care for ill relatives or children home from school. Nearly 9 million American workers said they were not working because of the virus — either because they were sick themselves or because they cared for someone in their household — according to the most recent US Census Bureau Household Pulse Survey, conducted between 29 December and 10 January.

The good news is that Omicron rates are falling rapidly, and the economy should bounce back quickly. Last winter’s brief drop and the Delta surge in the summer didn’t prevent a year of record-breaking jobs growth in 2021.

Even so, the impact from the variant will permeate economic reports throughout early 2022. Last week, Bank of America warned of a significant risk that America’s GDP will shrink in the first quarter because of Omicron. Goldman Sachs echoed that sentiment this week, forecasting an abrupt slowing of growth and consumer spending.

Nonfarm Payrolls in US is forecast to increase by 150,000 in January. Historically speaking, US jobs data has been impactful on gold prices. Analysis of gold’s reaction to the previous 18 NFP prints is worth mentioning.

On Friday 4 February, the US Bureau of Labor Statistics gets ready to release the January jobs report. Expectations are for a 150,000 rise in Nonfarm Payrolls following the 199,000 increase in December.

There were 11 negative and only 7 positive NFP surprises in the previous 18 releases, excluding data for March 2021. On average, the deviation was -0.92 on disappointing prints and 0.47 on strong figures. 15 minutes after the release, gold moved up by $3.66 on average if the NFP reading fell short of market consensus.

On the flip side, gold gained $0.03 on average on positive surprises. This finding suggests that investors’ immediate reaction is likely to be more significant to a disappointing print.

Has the US economy ground to a halt? That is the impression from the recent jitters in stock markets, the dollar’s decline, and potentially the upcoming Nonfarm Payrolls report from January. It could be an inflection point for the greenback.

The rapid spread of the Omicron COVID-19 variant caused disruptions across America, first hitting the skies with flight cancelations, and later prompting lower activity. Have low expectations gone too far?

Economists expect an increase of 150,000 new positions in January, which is modest even for pre-pandemic times, and even worse when taking into account the rapid recovery. It is also below the disappointing read of 199,000 in December.