Why the White House is sweating the next jobs report

By Kate Davidson and Aubree Eliza Weaver

Editor’s Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.

Omicron disruptions are quickly subsiding across the U.S., but the surge is still screwing up one more big thing for the White House: the January jobs report.

Administration officials are bracing for a grim employment report on Friday when the Labor Department releases figures on hiring and wages last month. That’s in large part because of when and how the agency collects data on payrolls.

As we explained in MM last month, the Bureau of Labor Statistics collects data from businesses during the pay period that contains the 12th day of the month. In January, that week happened to coincide with new omicron cases peaking in the U.S., at more than 1 million in a single day.

According to the Census Bureau’s Household Pulse Survey, nearly 9 million people reported being out of work in the first couple of weeks of January for Covid-related reasons, including because they were sick, quarantining or taking care of someone who was sick.

Here’s the catch: If an employee is out sick and doesn’t collect a paycheck during the survey week, the BLS doesn’t count them as employed. That could mean huge distortions from omicron in the January jobs report.

“It’s just extremely important to come to this report understanding that the impact of omicron cases will potentially be to significantly lower payrolls, when many of those folks still have a job, they’re just not being counted,” said Jared Bernstein, a member of the White House Council of Economic Advisers.

How bad could it be?

Economists surveyed by The Wall Street Journal estimate employers added only 150,000 jobs last month, down from 199,000 reported in December. Deutsche Bank economists forecast an even lower gain of 125,000. Capital Economics estimates non-farm payrolls may have actually fallen by 200,000 last month, and Pantheon Macroeconomics puts the decline at an estimated 300,000.

“I have no idea what to expect, as we have never had a time when so many workers were out sick at the same time,” Amherst Pierpont chief economist Stephen Stanley said in a research note. For workers with paid sick leave, an Omicron-related absence won’t make a difference to the data, but many others may have dropped off the payrolls last month.

“I have a modest payroll increase, assuming that perhaps a couple hundred thousand workers drop from the count due to sickness, but I would not be shocked if the headline figure is sharply negative,” he said.

What does it mean?

Most economists expect the numbers will bounce back, potentially as soon as this month, as Omicron recedes and most workers return to their jobs. While this wave of the virus was the worst yet, and other variants could still emerge, the economy has proven increasingly resilient with each subsequent surge.

What data should we look to in the meantime? The report’s household survey, which asks workers whether they had a job, may offer better clues about what actually happened in the labor market last month.

Meanwhile, White House officials are trying to keep the focus on the underlying trend in the labor market, which Bernstein says is “historically tight.” The jobless rate fell to 3.9 percent in December, from 6.7 percent just a year earlier, and economic output soared in the fourth quarter, boosting GDP growth to 5.7 percent in 2021.

“The key from our perspective is we’re coming off a year that had the fastest economic growth in almost four decades, a year when the unemployment rate fell faster than any year on record, layoffs are at a record low,” Bernstein said. “So it’s really important to recognize that one month does not a new trend make, especially when that month coincides with peak omicron cases during the very week when the survey was taken.”

IT’S TUESDAY — It’s also February, and Covid vaccines for the under-5 set could be ready to go by the end of the month , according to reports. Anyone else jumping for joy, breathing a sigh of relief, experiencing other emotions? I know one family ready to spend more on in-person services once we’re all fully vaccinated.

Tips, ideas, feedback, send 'em: kdavidson@politico.com, aweaver@politico.com, on Twitter @katedavidson, @aubreeeweaver.

DON’T MISS CONGRESS MINUTES: Need to follow the action on Capitol Hill blow-by-blow? Check out Minutes, POLITICO’s new platform that delivers the latest exclusives, twists and much more in real time. Get it on your desktop or download the POLITICO mobile app for iOS or Android. CHECK OUT CONGRESS MINUTES HERE.

ISM manufacturing index, construction spending data and Job Openings and Labor Turnover Survey released at 10 a.m.

QUARLES RETURNS TO PE FIRM; WARREN BALKS — Former Federal Reserve Governor Randal Quarles is headed back to Cynosure Group , the private equity firm he co-founded more than eight years ago. Cynosure announced Sunday that Quarles, who left the Fed in October after serving four years as vice chair for supervision, has rejoined the firm as its executive chairman.

Sen. Elizabeth Warren (D-Mass.) blasted the move in a tweet Monday night — Quarles “was a high-level policymaker at the [Fed] just a few months ago, but now he’s back to work at his private equity firm in the financial sector,” she said. “We need to slam shut this revolving door & I’ve got a bill to get it done.”

FACEBOOK’S CRYPTO PROJECT SOLD AFTER POLITICAL BACKLASH — Our Sam Sutton and Victoria Guida: “The Diem Association — a group Facebook spearheaded to launch the Diem stablecoin — said Monday it will sell its intellectual property and assets to the California bank Silvergate, a go-to firm for the crypto industry.

“The announcement caps a nearly three-year odyssey on the part of Facebook and its partners to launch a digital currency … Lawmakers and regulators in the United States and Europe ultimately derailed Diem's ambitions, stoked by fears around how such an offering on the scale of Facebook would impact the financial system and the control central banks assert over money.”

WIN FOR CRYPTO: HIMES REVISES RANSOMWARE SAFEGUARD — More from Sam: “Rep. Jim Himes (D-Conn.) is proposing that the House narrow a financial crimes provision he drafted in Democrats' China competitiveness bill, after cryptocurrency advocates warned the proposal threatened the industry and its users.

“The section at issue would expand the Treasury Department's authority to monitor and freeze accounts at financial institutions — a policy intended to address the use of digital assets in ransomware attacks, money laundering and other illegal activity.”

—Meanwhile , our Ben Schreckinger reports lawmakers in Wyoming and Arizona have put forward proposals that would allow those states to accept tax payments in the form of digital currencies.

U.K. TOUGHENS SANCTIONS REGIME TO TARGET RUSSIA OVER UKRAINE — Our Christina Gallardo in London: “Britain unveiled a plan to hit more Russian individuals and businesses with sanctions if Moscow goes ahead with an invasion of Ukraine. The U.K. has had an independent sanctions regime since fully leaving the EU at the end of 2020 — but under current rules, it has only been able to sanction those directly linked to the destabilization of Ukraine.”

TO CONFRONT CHINA, BIDEN MUST CONFRONT ‘BIZARRE’ U.S. TRADE POLICY — Former WSJ reporter Bob Davis writes in POLITICO Magazine: “Biden’s narrow win in the Rust Belt was based partly on his promise that he’d protect American jobs, which means keeping a strict lid on foreign competition. But that political red line is also a big handicap in the race with Beijing. Those are exactly the commitments Asian nations say they need to export more to America and limit their dependence on China.”

TREASURY LIFTS QUARTERLY BORROWING ESTIMATE TO $729B — Bloomberg’s Liz McCormick: “The U.S. Treasury boosted its estimate of federal borrowing needs for the three months through March after entering the quarter with a cash pile that was run down by congressional delays in lifting the government’s debt limit.”

— In a statement released alongside the estimates, Assistant Treasury Secretary for Economic Policy Ben Harris said U.S. inflationary pressures should ease in 2022 due to weaker demand for goods, easing supply bottlenecks and a receding coronavirus pandemic, Reuters reported. Harris, Treasury’s top economist, said he expects energy prices to stabilize in 2022, but geopolitical instability could push prices higher.

FED OFFICIALS SAY MARCH RATE HIKE ON TRACK — Reuters’ Jonnelle Marte, Howard Schneider and Ann Saphir: “Federal Reserve policymakers are set on raising interest rates in March but spoke cautiously on Monday about what might follow , signaling this rate hike cycle may not come with the same sort of hand-holding and guidance that markets have come to expect.”

FED NOMINEE HAS FOCUSED HIS RESEARCH ON POVERTY, MONETARY POLICY — WSJ’s Andrew Duehren: “Economist Philip Jefferson has called on the Federal Reserve to more closely consider how its policies shape the economic well-being of different groups of Americans. If confirmed for a seat on the central bank’s board, he may soon prod it to do so as it prepares to raise interest rates to combat inflation.”

ICYMI: HOW THE FED’S POLICY SHIFT IS RIPPLING THROUGH THE HOUSING MARKET — WSJ’s Ben Eisen: “The Federal Reserve’s decision to end its era of easy money is rippling through the mortgage market , driving up the cost of buying a home. The central bank had been the biggest buyer of pools of home loans since the start of the pandemic. Now it is reversing course, winding down its purchases and laying the groundwork to shrink the $2.7 trillion stockpile it has built up. These mortgage-backed securities, hot investments for much of the pandemic, are now selling off.”

Sen. John Barrasso (R-Wyo.), the top Republican on the Senate Energy and Natural Resources Committee, sent a letter to the Banking Committee Monday opposing Sarah Bloom Raskin’s nomination to be Fed vice chair for supervision, warning that she would try to block “investment in traditional American energy.”

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

INFLATION: A MODERN FISCAL AND MONETARY ‘MESS’ — Former Trump CEA Chairman Kevin Hassett in National Review calls Treasury Secretary Janet Yellen’s Davos speech ”one of the most serious policy threats to the future of our economy launched by a treasury secretary.

“In it, she introduced the idea of ‘modern supply-side economics’ MSSE — unfortunately for Yellen, this will forever be (appropriately) pronounced ‘messy.’ Indeed, instead of rejecting the word modern to address the expectations crisis, the administration is recklessly spreading it like inflationary fertilizer.”

STOCKS END HIGHER, STILL LOG WORST MONTH SINCE MARCH 2020 — AP’s Stan Choe and Alex Veiga: “Stocks closed higher Monday, but still logged their worst monthly loss since the early days of the pandemic, as Wall Street closes a tumultuous January wracked by worries that imminent interest-rate hikes will make everything in markets more challenging. The S&P 500 rose 1.9 percent, but it’s still down 5.9 percent since setting a record exactly four weeks ago. It lost 5.3 percent this month, its worst since falling 12.5 percent in March 2020…”

GROWTH SLOWS AT END OF 2021 IN 19 COUNTRIES THAT USE EURO — AP’s David McHugh: “The European economy slowed noticeably at the end of last year as surging COVID-19 cases driven by the omicron variant piled on top of supply shortages and rising energy prices that dented consumer purchasing power. The result: An economic winter of discontent that may not lift until later this year.

“Much of the slowdown came in Germany, Europe’s largest economy, where difficulty getting parts held back its export-heavy manufacturing economy.”

Follow us on Twitter

Mark McQuillian @mcqdc Kate Davidson @KateDAvidson Aubree Eliza Weaver @aubreeeweaver Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary

Follow us

To change your alert settings, please log in at https://www.politico.com/_login?base=https%3A%2F%2Fwww.politico.com/settings

This email was sent to by: POLITICO, LLC 1000 Wilson Blvd. Arlington, VA, 22209, USA

Please click here and follow the steps to .