The private sector lost jobs in January for the first time in 13 months as Omicron peaked

• The US private sector lost 301,000 jobs in January, according to ADP's monthly hiring report.
• That badly missed the median forecast of 207,000 new jobs and marked the first contraction since December 2020.

The US labor market's recovery slid backward in January as the Omicron variant powered record-high infections and a new wave of economic turmoil.

Private payrolls fell by 301,000 in the first month of 2022, ADP said in its monthly hiring report on Wednesday. That badly missed the median forecast of 207,000 added payrolls from economists surveyed by Bloomberg. It also shows private-sector hiring reversing course from December's increase of 807,000 jobs.

The report shows the hiring recovery taking a huge step back in the first weeks of the new year. Several factors likely hit the brakes on job growth. Daily COVID infections hit a peak of more than 1.4 million on January 10, and while counts have since fallen, they remain elevated compared to prior waves. The highest inflation in 40 years has also weighed on business sentiments as they struggle to navigate supply-chain troubles and waning consumer demand.

"This was a real wild card, given the uncertain impact of the Omicron wave," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said. "These data, and probably February's too, will always be asterisked; they tell us nothing about the underlying state of the labor market."

Losses were largest in the leisure and hospitality sector, with firms shedding 154,000 payrolls through the month. The trade, transportation, and utilities sector followed with a 62,000-payroll loss. Only mining and professional and technical services companies added jobs through the month, but even those sectors added only 4,000 payrolls each.

Small businesses bore the brunt of the decline. The group – consisting of firms with fewer than 50 employees – lost 144,000 jobs in January, according to the report. Businesses with 50 to 499 employees lost 59,000 payrolls, and companies with more than 500 workers saw payrolls drop by 98,000.

Weekly filings for unemployment benefits offered an early sign that the rebound was losing steam. Jobless claims began to swing higher in the last week of December and briefly hit the highest count since mid-October. Though claims data is somewhat volatile, the uptick signaled the jobs recovery was still on choppy waters.

The ADP print could also hint at a disappointing jobs report to come. Economists see the country adding 150,000 payrolls in January, reflecting yet another slowdown and the weakest growth since December 2020. Some, like economists at Bank of America, even see the US shedding 150,000 jobs through January.

Pantheon's Shepherdson is even more pessimistic. He sees payrolls contracting by 300,000 in the upcoming report, mostly due to just how widespread Omicron was in January. March will offer the first "fully post-Omicron" jobs report, and precedent suggests "all the lost ground won't be recovered immediately," he said.

With December's jobs report already disappointing on most fronts, another bleak report would dramatically sour hopes for the US recovery.