U.S. Added 467,000 Jobs in January

Employers in leisure and hospitality, retail and transportation and warehousing added jobs last month. The automotive industry shed jobs.

The payrolls number comes from a Labor Department survey of businesses. A separate survey of households released in Friday’s report determines the unemployment rate. The unemployment rate ticked up slightly in January to 4% from 3.9% in December. Joblessness remains at a historically low level reflecting companies’ need for workers in a growing economy.

The labor force participation rate rose to 62.2%, the highest level since the pandemic hit in early 2020.

Many workers are reaping their largest pay gains in years, as companies compete for a limited pool of workers. Wages grew 5.7% in January from a year earlier, nearly double the average of about 3% before the pandemic hit.

The number of absences—people who were not working due to illness—rose to 3.6 million in January from 1.7 million in December, when Omicron variant caseloads began to grow exponentially.

“The January employment report will be a temporary setback for the labor market,” said

Sarah House,

senior economist at Wells Fargo. “It really has been impacted by Omicron and therefore isn’t giving us the full story of where the labor market is heading over the coming months.”

Many economists are projecting the labor market will bounce back later this year, as the virus subsides. Workers who were sick will be able to return to their jobs, and employers eager to hire will have fewer disruptions to confront, they say. Plus, there are numerous signs the labor market remains tight, from elevated job openings and worker turnover to low numbers of unemployment claims.

Still, the pandemic has triggered higher inflation, challenging policy makers and their efforts to support growth. The Federal Reserve signaled it would begin steadily raising interest rates in mid-March to bring down inflation.

Economists expect economic growth and job growth to cool this year, as many of the factors that buoyed spending in 2021—including reopenings, fiscal stimulus and vaccinations—disappear.

The economy will be more reliant on a resurgence in supply. A pickup in labor-force participation, or the number of people working or searching for work, is expected to be a key driver behind job growth this year. The labor-force participation rate fell sharply at the beginning of the pandemic and, at 61.9% in December, remains well below the pre-pandemic level of 63.4%.

Omicron is affecting the economy through a different mechanism than previous virus waves, which triggered government restrictions on business and a pullback in consumer demand. By comparison, Omicron sent millions of sick workers into quarantine, exacerbating labor shortages at restaurants, airlines and public-transit systems.

Some economists estimate that in January’s jobs report as many as 5 million workers could be counted as employed but absent from work because of sickness, up from 1.7 million workers in December. Employee absences are adding to companies’ pandemic-related challenges, including roiled supply chains.

Being a plant manager is the toughest job at paint supplier

PPG Industries,

chief executive

Michael McGarry

said in a fourth-quarter earnings call Jan. 21.

“They wake up in the morning, check their phone to see how many people call off sick, and then they get to work,” he said. “Before they even have a morning meeting, they’ve had to overcome a number of issues.”

Those include dealing with delays in the receipt of raw materials and other supply-chain disruptions, such as truckers not picking up finished products, Mr. McGarry said.

The total number of shifts worked by people at U.S. businesses decreased 5.1% in January, according to the payroll-services company Ultimate Kronos Group. The decline in workforce activity is the largest since the pandemic began. The surging Omicron wave hit the retail, hospitality and food-service sectors hardest. Shift volume in those industries declined about 7% in January from December.

There are signs that the labor-market squeeze from Omicron is easing. Jobless claims fell to 238,000 last week after surging to nearly 300,000 in mid-January. Workers in many major cities are starting to re-enter offices after a winter lull, according to Kastle Systems, a security firm that monitors access-card swipes.

February job gains “could potentially be very strong,”

Aneta Markowska,

chief economist at Jefferies LLC, said. The February report will capture employment gains tied to new hiring and the return of workers following the Omicron surge, including cafeteria workers at Ms. Markowska’s office building this week after a nearly two-month shutdown.

H&R Block Inc.,

a tax-preparation company, is in hiring mode, as tax season gets under way.

“Everyone has got to get their taxes done,” said

Tiffany Monroe,

H&R Block’s chief people and culture officer.

The company has been able to retain tax professionals, such as certified accountants and tax advisers, from previous years because they have close relationships with their clients, Ms. Monroe said. But H&R Block is finding it more challenging to retain and hire entry-level receptionists to greet clients and take calls across its offices.

“We’re definitely going after the same people that a lot of the other retailers are going after,” said Ms. Monroe. H&R Block is emphasizing to receptionists that they can advance into a leadership position or a tax-professional job, she added.

“The labor market is as tight as we have ever seen it,” said

Luke Tilley,

chief economist at Wilmington Trust Investment Advisors.

There are roughly 60 unemployed people for every 100 job openings, meaning just about anyone who wants a job can find one. Still, that doesn’t mean everyone will have a job. There are about 2 million fewer Americans working or looking for a job than before the pandemic struck. Child-care shortages, early retirements and worker concerns of infection are holding back job searches.

Workers could have more incentive to return to the labor market, as their savings dwindle and the health situation improves, economists say. The prospect for a big paycheck could also draw more Americans off the sidelines.

Write to Sarah Chaney Cambon at [email protected] and Gabriel T. Rubin at [email protected]