U.S. companies unexpectedly cut jobs in January for the first time in a year, as a surge in the highly contagious omicron coronavirus variant battered the labor market’s recovery from the pandemic, according to the ADP National Employment Report released Wednesday morning. 

Companies shed 301,000 jobs last month, sharply missing the 207,000-job gain that economists surveyed by Refinitiv had predicted and a major drop from the downwardly revised gain of 776,000 in December. It marked the first time that ADP reported negative growth since December 2020, when companies shed 123,000 jobs before the vaccines were available. 

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“The labor market recovery took a step back at the start of 2022 due to the effect of the omicron variant and its significant, though likely temporary, impact to job growth,” Nela Richardson, ADP chief economist, said in a statement.

The job losses were concentrated heavily in the leisure and hospitality industry, one of the sectors hit hardest by the pandemic. The industry shed 154,000 jobs in December as consumers opted to stay home to avoid the new variant. 

A man looks at signs of a closed store due to COVID-19 in Niles, Illinois, on May 21, 2020. (AP Photo/Nam Y. Huh / AP Newsroom)

Beyond that, losses were broad-based: Trade, transportation and utilities eliminated 62,000 positions, while education and health services fell by 15,000 and construction shed 10,000. Manufacturing also reported losing 21,000 jobs last month. 

In all, service-providing industries accounted for 274,000 of the job losses, with goods producers dropping by 27,000.

The data precedes the Labor Department’s more closely watched January jobs report, which is expected to show the economy added 150,000 jobs last month, which would be the weakest since December 2020.

But there is a possibility the number will be far worse: The White House is already in damage control mode, with press secretary Jen Psaki warning reporters earlier this week that there’s a possibility for a negative number. 

“Because omicron was so highly transmissible, nearly 9 million people called out sick in early January when the jobs data was being collected,” Psaki told reporters. “The week the survey was taken was at the height of the omicron spike … As a result, the jobs report may show job losses, in large part because workers were out sick from omicron at a point when it was peaking.”

A “NOW HIRING” sign is posted in the window of The Wharf Chocolate Factory at Fisherman’s Wharf in Monterey, California, Aug. 6, 2021. (AP Photo/Rich Pedroncelli / AP Newsroom)

The “survey reference week” this month was taken between Jan. 9 to 15 – precisely when COVID-19 cases peaked, with the highest seven-day average count coming on Jan. 15, according to the CDC. Hourly employees who were sick and had to stay home that week without paid sick leave will not be counted as employed, even if they have not been laid off. 

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A Census survey shows that an estimated 8.75 million Americans said they were not working in early January, either because they were infected with COVID-19 or taking care of someone else who had contracted the virus. That’s a huge jump from December, when 2.96 million people reported they could not work due to the coronavirus.  

While it’s still unclear what the fast-spreading variant will ultimately mean for the health of the economy, its effects on daily life have already been felt. Thousands of flights have been canceled, Broadway shows are shuttering their doors and a growing number of schools have postponed reopenings. The White House has maintained that it has the resources needed to respond to any disruptions caused by the omicron spread.