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US ECONOMICS: Weak January Employment Report a 'Transitional Month,' February Rebound Seen, Jefferies Economists Say

· 02/05/2021 04:46

09:37 AM EST, 02/05/2021 (MT Newswires) -- The January employment data were weaker than expected, but likely represent a turning point as many states are loosening their COVID-19 restrictions later in the month and thousands of people are getting vaccinated every day, leading to a rebound in February according to Jefferies economists Thomas Simons and Aneta Markowska in a note to clients Friday.

The increase of 49,000 in nonfarm payrolls in January was well below the 100,000 rebound expected and followed a sharp downward revision to November, which now shows a 227,000 decline, the economists said. The leisure and hospitality sector was a key factor in both months, and one of the main sectors that has the most to gain by a rollback in restrictions.

"Payrolls in the leisure & hospitality sector fell 61K after falling 536K last month, signifying that the data does not capture the end of the lockdowns in California and the subsequent reopening process," said the Jefferies economists, who had forecast an outright decline in overall payrolls and had suggested in their preview that January is a "transition month."

"We expect that we will see these jobs return in next month's data, which should really change the tone for the labor market," they said.

The one bright spot in the report was a decline in the unemployment rate to 6.3% from 6.7% in December. However, that decline came from unemployed workers leaving the labor force for various reasons, the Jefferies economists said. The participation rate declined to 61.4% from 61.5% in December, with a sharp drop in the number of household unemployed.

"We will need to see broader distribution of the vaccines and more widespread reopenings of schools for in-person, all-day learning before the participation rate rebounds meaningfully as childcare issues are playing a major role in workers' availability," the Jefferies economists said.