January 2022 Market Brief: “Higher than Expected”: The Economy and Labor Market that Keeps Everyone Guessing, Even the Experts

Nothing is clear cut in the economy and labor market right now; we could add an asterisk to just about every aspect of it. But the one thing that’s certain: companies are on the hunt for workers, and workers are on the hunt for…personalization.

It was hard to pick one word for this month’s brief, so let's go with three. Surges, Revisions, and Wages.

Surges. For nearly two years, we’ve associated the word ‘surge’ with bad news—surges in COVID-19 cases, deaths, lockdowns, job quits, inflation.

This month, ‘surge’ was also used to convey some good news. Counter to expectations for negative job growth in January (Omicron), the economy actually added jobs—467,000 to be exact.

And while overall demand slowed in January for engineering and sciences, there was still growth in some areas:

Manufacturing added 13,000 jobs, even as the industry struggled with supply chains, inventory, and labor shortages. Intel recently announced a $20 billion investment in a chip-making complex in Ohio, an effort to boost capacity of semiconductors as the global shortage affects the production of appliances to smartphones to vehicles.

Scientific Research and Development added 3,700 jobs. Year over year, demand for chemists increased by 72 percent across all industries. Skills in clinical data collection and analysis also continue to show high demand.

Architectural and engineering added 8,400 jobs, with recruitment of architectural staff a top priority for A&E services as project workloads increase in 2022. In an American Institute of Architects survey, 49% of firms reported increasing salaries and 45% reported increasing employee perks to retain current staff.

Experts argue this unexpected job growth is a sign of a resilient economy, though not one that's immune to the effects of Omicron. A separate US Census Bureau survey estimated nearly 8.8 million people were out of work due to illness or caring for someone who was ill in January. As a result of this worker shortage (on top of an already existing worker shortage), businesses reduced hours, managed workloads, incurred backlogs, and brought on more temporary workers to help ease the burden.

Revisions. Every month, the US Labor Department’s Bureau of Labor Statistics (BLS) conducts two surveys to inform its monthly jobs report, the Establishment Survey collects data from approximately 145,000 business and government agency payrolls, and the Household Survey collects data from around 60,000 households. In January, the BLS changed its estimate of how recurring seasonal patterns influence monthly employment, since those patterns were heavily distorted by the pandemic. As a result of the changes, 217,000 more jobs were added in 2021 than were previously reported.

Also beginning with January’s data, the BLS made changes in its population estimates based on the ten-year census, resulting in increases for both the labor force and labor force participation rate (62.2% in January). Still, there are millions of workers not in the labor force compared to February 2020.

Wages (and Inflation). Job openings continue to outpace the number of available workers to fill them—60 workers for every 100 openings—and employers are attempting to win them over with higher wages. Hourly earnings for all employees increased by 23 cents in January (0.1 percent). Over the past year, average hourly earnings increased by 5.7 percent—the largest spike since March 2007. However, inflation keeps stealing the show. And the wages. The consumer price index was higher than expected in January, rising 7.5 percent from a year ago (and up 0.6 percent from December) offsetting any wage gains. This marks the fastest increase since February 1982.

Connecting the Dots

• Attrition rates continue to be at the top of every meeting agenda, including in engineering and sciences industries. MIT conducted a study between April 2021 and September 2021 that revealed a 11 percent attrition rate in research hospitals; 10 percent attrition rate in pharmaceuticals and biotech; 9 percent in aerospace and defense; 9 percent in semiconductors; and 7 percent in medical devices. The competition is stiff for companies looking to attract and retain workers with skillsets and experience in these industries.
• The Conference Board anticipates a 3.9 percent increase in wage costs for businesses in 2022, nearly a full percentage point higher than their April estimate (3 percent), and the highest since 2008. Talent attraction and inflation, which hit its fastest pace in four decades, were identified as the top contributors to the increase.
• It remains to be seen whether higher pay is enough to lure missing workers back to the labor force. It might be— total household debt grew by $1 trillion in 2021, the largest increase since 2007. But even if it is, their return won't be enough to recover the losses of an aging workforce and declining birthrate. As we often write about in these briefs, gone are the days of replaceable employees. Companies must continue to find new ways to get work done.
• Companies must also continue to improve their employee value proposition to attract and retain workers. For many workers, flexibility, purpose, and culture are also on their list—ranking higher than pay in some cases. And while there may be generational or industrial patterns to what employees are on the hunt for in an employment experience (higher pay, purpose, flexibility, positive culture) the only way to know for sure, is to ask them.