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Companies cut jobs in January for the first time in more than a year as the spread of the Covid omicron variant appeared to hit hiring, payroll processing firm ADP reported Wednesday.

Private payrolls fell by 301,000 for the month, well below the Dow Jones estimate for growth of 200,000 and a marked plunge from the downwardly revised 776,000 gain in December. It was the first time ADP reported negative job growth since December 2020.

The pandemic-sensitive leisure and hospitality industry was responsible for more than half of the decline, as companies reported a drop of 154,000. Trade, transportation and utilities cut 62,000 while the other services category declined by 23,000.

Manufacturing also lost 21,000 positions, while education and health services reported a drawdown of 15,000 and construction fell by 10,000.

Service-providing industries were responsible for 274,000 of the job losses, with goods producers falling by 27,000.

“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,” ADP’s chief economist, Nela Richardson, said.

The ADP numbers come two days before the more closely watched nonfarm payrolls count from the Labor Department. Wall Street expects that report to show a gain of just 150,000 jobs, though economists and White House officials are warning the month’s numbers could be rough due to omicron and statistical effects from the way the Labor Department compiles the data.

While ADP’s report could signal a weak number Friday, the two counts can differ substantially. In December alone, ADP’s total — initially put at 807,000 before the revision — was well above the Bureau of Labor Statistics’ count of 211,000 for private payrolls and 199,000 for the total nonfarm number.

From a business-size standpoint, the job losses were concentrated at small firms, with companies employing fewer than 50 people seeing a drop of 144,000. Businesses with more than 500 employees lost 98,000, while medium-sized firms declined by 59,000.

Federal Reserve officials are watching the jobs numbers closely. Policymakers have said they think the U.S. economy is around full employment, and they have teed up a series of interest rate increases this year.

Spurred by a massive inventory rebuild and consumers flush with cash, the U.S. economy last year grew at its fastest pace since 1984.

Don’t expect a repeat performance in 2022.

In fact, the year is starting with little growth signs at all as the late-year spread of omicron coupled with the ebbing tailwind of fiscal stimulus has economists across Wall Street knocking down their forecasts for gross domestic product.

Combine that with a Federal Reserve that has pivoted from the easiest policy in its history to hawkish inflation-fighters, and the picture has suddenly changed substantially. The Atlanta Fed’s GDPNow gauge is currently tracking a first-quarter GDP gain of just 0.1%.

“The economy is decelerating and downshifting,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council under then-President Donald Trump. “It’s not a recession, but it will be if the Fed tries to get too aggressive.”

GDP surged at an impressive 6.9% in the fourth quarter of 2021 to close out a year in which the measure of all goods and services produced in the U.S. increased 5.7% on an annualized basis. That came after a pandemic-induced 3.4% decline in 2020, a year that saw the steepest but shortest recession in U.S. history.

But the path ahead is less certain.

Much of that end-of-year gain was fueled by an inventory rebuild that contributed fully 4.9 percentage points, or 71% of the total. Inventories were responsible for almost all of the third quarter’s 2.3% GDP increase.

At the same time, Tuesday’s ISM Manufacturing survey showed that the pace of new orders, while still showing gains, is slowing substantially.

Taken together, that’s not much of a recipe for sustained growth.

“Inventories are roughly back to where they should be,” said Mark Zandi, chief economist at Moody’s Analytics. “Then you’ve got growing headwinds from fiscal and monetary policy. So, yeah, growth starting the year will be very soft.”

Wall Street economists have been marking down their growth projections quickly.

Goldman Sachs slashed its first-quarter GDP outlook to 0.5%, down from 2%. The bank also cut its full-year view to 3.2%, well below the current 3.8% consensus.

“Growth is likely to slow abruptly in 2022, as fiscal support fades and, in the near term, virus spread weighs on services spending and prolongs supply chain disruptions,” Goldman economist Ronnie Walker said in a note for clients. “Q1 growth is likely to be particularly soft because the fiscal drag will be accompanied by a hit from Omicron.”

Likewise, Bank of America knocked down its first-quarter number to 1% from 4% and cut its full-year forecast to 3.6% from 4%, with risks to that forecast seemingly tilting to the downside.

Bank of America’s head of global economics research Ethan Harris cited four reasons for the downbeat outlook: omicron, the retreat in inventory build, less fiscal support, and a tighter Fed as well.

“We now expect a fiscal package about half the size of the Build Back Better Act, with less front-loaded fiscal stimulus. We think it will boost 2022 growth by just 15-20 [basis points], compared to our earlier estimate of 50bp,” Harris wrote. “Risks of a negative growth [first] quarter are significant, in our view.”

A basis point is 1/100th of a percentage point.

Bank of America has another wrinkle in its forecast: a call for seven 25-basis-point rate hikes this year. That’s considerably more aggressive than anywhere else on the Street, which is currently pricing in five hikes with about a 31% chance of a sixth, according to the CME.

Zandi said the Fed needs to be careful it doesn’t go too far in its fight against inflation, which is running at its highest rate in nearly 40 years.

“They run the risk of getting ahead of themselves and overdoing it. They have pivoted very hard here,” he said. “Market expectations are for five increases. Six is now entering into the debate and discussions. That feels like that could be a rate hike or two too far, given the growing headwinds in the economy.”