The January US non-farm payrolls report isn’t about jobs, it’s about job losses

I can guarantee there will not be job gains in the US in January.

But the consensus for the January non-farm payrolls report is +178K jobs. How can that be?

The answer is seasonal adjustments. The non-farm payrolls report is seasonally adjusted, which means it’s a number that smooths out things like teacher hiring and seasonal work. It’s designed to look through things like temporary retail hiring in December and it’s also designed to look through those layoffs in January.

Why I’m so sure that January will include layoffs is because it always does. As Diane Swonk from KPMG highlights, the average job losses in January in the 2010s were 2.87 million.

Last year, there were only 2.5 million layoffs and that’s a big reason why non-farm payrolls ‘rose’ 472K in the best month of the year in 2023.

For Friday’s report, seasonal adjustments will continue to be a factor. The problem is that the pandemic skewed many seasonal factors and may have led to unusually strong January numbers. It’s reminiscent of the time following the financial crisis when initial jobless claims numbers were revised higher for +40 consecutive weeks until the methodology was re-examined.

I expect many economic indicators to struggle with seasonal adjustments in the months and years ahead.