The addition of 49,000 jobs in January was, on the surface, welcome news for the labor market and economy after a downwardly revised 227,000 jobs were shed in December. Same goes for the headline unemployment rate, which fell 0.4 percentage points to 6.3% after spending the previous two months stuck at 6.7%. But despite the modest improvements, the January jobs figures also highlighted the breadth of the current crisis in the labor market as 2021 begins. While the December report was highlighted by severe losses in service-based industries that have been directly impacted by pandemic-driven shutdowns – in particular, leisure and hospitality – today’s report concerningly showed that many industries that have otherwise been showing signs of growth fell back on the month. The goods manufacturing sector, for example, has enjoyed a strong stretch in recent months, but still employs 400,000 fewer people than it did this time last year — and in January it cut 17,000 jobs. A similar story is playing out in other industries that have seemingly been performing well relative to the broader economy: Warehousing and storage employment fell 17,400 on the month and construction employed slipped by 3,000. The overall level of employment is down 9.9 million jobs from before the pandemic and the percent change in employment from February 2020 is still greater than the worst peak to trough change during the Great Recession. Backtracks in otherwise relatively well-performing sectors is concerning, and a signal that the labor market writ large remains stalled at the beginning of 2021.
Lackluster improvement in the labor market overall was seemingly contradicted earlier in the week by positive news from the service sector – a combination of industries that comprise about 70% of U.S. GDP. The ISM Services Index headline reading of 58.7 was the strongest single month for the series since February 2019. While the series has technically improved, rather than contracted, for eight consecutive months, the January report was perhaps the loudest indication that the economy — or at least, the service-based economy — is starting off 2021 on the right foot. The sub-index that measures employment jumped 6.5 points to reach 55.2, the highest level since March 2020, just as the pandemic was gathering steam. The uptick in activity indicates that companies began to add or re-hire more workers in January as many restrictions were lifted following the holiday season. All told, it appears that a broad part of the economy put its best foot forward to begin the year and may be primed for stronger growth in the months to come.
After rising sharply near the beginning of the year and subsequently dropping back to record lows, mortgage rates ticked upward this week and are now at a bit of an impasse. On one hand, the economy is showing signs of continued recovery – service sector activity continues to improve, local economies have begun to reopen, and COVID-19 case volumes have fallen from their post-holiday highs. On the other, the labor market remains deeply wounded, as concerns about new virus variants have escalated and the fate of the next wave of fiscal relief is currently in flux, even as it passed key Congressional procedural votes on Friday. Rates moved upward in response, but were held back in part by the underwhelming jobs figures. Regardless of the path forward for mortgage rates, homebuyer activity remains strong for now. Applications for home purchase loans ticked up again last week and activity – a leading indicator of home sales – is up more than 16% year-over-year. A separate report highlighted how demand for homes in Manhattan has evidently returned after a falling sharply in mid 2020. According to Douglas Elliman Real Estate, purchase contracts for co-ops and condos in Manhattan, New York City jumped by 103% in January from the same month in 2020 – more than doubling on the year.