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Post: Economic Preview: Why the U.S. might have lost jobs for the first time in more than a year

Wall Street and Washington are bracing for the worst U.S. jobs report in more than a year on Friday. The economy may have even lost jobs in January.

How come? Here’s a MarketWatch primer.

Why is a bad report expected?

The record wave of coronavirus cases in January forced millions of ill workers to stay home. A survey of households estimates a record 8.75 million people were absent from work when the government was compiling its employment report.

As a result, economists polled by The Wall Street Journal estimate the U.S. added a scant 150,000 new jobs. If so, it would be the smallest increase in 13 months.

It could be even worse — a lot worse.

Some forecasters predict employment will fall for the first time since the end of 2020. Earlier this week payroll processor ADP said private-sector businesses culled 301,000 jobs in January.

The Biden administration is also sounding an alarm. The president’s chief spokeswoman and White House economists told reporters this week to expect a bad jobs number in an effort to get ahead of a negative public reaction.

But these people still have jobs, right?

Yes, they do.

Yet owing to an odd quirk in the jobs report, people who are paid hourly aren’t considered employed if they are absent from work during the week when the government conducts its survey of employment. The survey was compiled when omicron variant coronavirus cases were peaking.

Employees who get paid hourly and lack sick leave tend to work in service-oriented businesses such as hotels and restaurants that suffer the most during viral flareups.

Salaried workers, by contrast, are still considered employed even if they are not at their jobs.

What will the jobs report tell us then?

Not as much as usual. Omicron flared up in January and now cases are falling fast. So millions of people who took time off are returning to work. They should show up again in the February report and perhaps result in inflated job gains.

“People are going to discount it pretty heavily,” chief economist Richard Moody of Regions Financial. “I don’t think there is much that is going to be useful in this report about the underlying trends in the labor market.”

James Bullard, the president of the St. Louis Federal Reserve, said a weak jobs report would be misleading.

“I think the upcoming job report won’t be very good because of omicron but don’t be fooled, this is quite a strong economy and a very strong labor market,” he said. Most companies, he pointed out, want to hire but they can’t find enough workers.

What about the unemployment rate?

The percentage of people considered unemployed is forecast to stay at 3.9% — one of the lowest levels in decades.

The low unemployment rate, however, overstates just how good the labor market is. Nearly 4 million people who were working before the pandemic have not returned. That’s a big reason why the rate has fallen so low.

Economists suspect the true jobless rate is also a few points higher because some workers mischaracterize their employment status. They might actually be unemployed even though they still think of themselves as having a job.

Can anything be gleaned from the report?

Economists are watching to see if wages rise sharply again and whether the increase in pay is widespread.

It’s a double-edged sword. Rapidly rising wages could add to already high U.S. inflation, but they are also give workers more spending power.

The percentage of people in the labor force is another big barometer of the health of the job market. The so-called labor force participation rate sank to a 47-year low early in the pandemic and hasn’t recovered all that much.

The rate of participation has clawed back to 61.9% from a pandemic low of 60.2%, but it’s still far from its precrisis peak of 63.4%. Any improvement would be welcome.

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