US workforce grows by just 199,000 in disappointing December
The US economy ended the year with disappointing jobs growth figures for December, adding just 199,000 workers to the non-farming labor force.
Economists had been expecting more than double that number – 422,000 – suggesting that the US economy was improving, but erratically, as worker shortages troubled employers even before the Omicron coronavirus variant arrived, threatening another recovery stall.
Figures released by the Bureau of Labor Statistics showed that the US unemployment rate fell to 3.9%, and that job creation was highest in leisure and hospitality, a key recovery sector, which added 53,000. Professional and business services contributed 43,000 while manufacturing added 26,000.
“The muted 199,000 gain in nonfarm payrolls and the more muted increase in labor force participation suggest that worker shortages were becoming a bigger restraint on employment growth, even before the Omicron surge in infections, which could knock hundreds of thousands off payrolls in January,” noted Michael Pearce, senior US economist at Capital Economics.
But the slower-than-anticipated pace of hiring is offset by the record number of positions in 2021 and jobless claims registered at 207,000 last week close to the lowest level in 50 years.
But the latest numbers suggested continued uncertainty over the course of a US economy that had begun rebounding strongly between waves of Covid disruption.
The latest Omicron surge, which has disrupted transportation, office reopenings and hospitality, has shown that expectations of a smooth recovery are misplaced.
“The volatility incurred by Omicron sweeping across America means that the data point of today is basically useless in assessing tomorrow,” said George Ball, chairman of financial services firm Sanders Morris Harris, told NBC TV on Friday morning.
The disappointing job figures may also cause US central bankers to reconsider plans to accelerate reductions in stimulus spending as they attempt to balance job growth against tackling inflation that stands close to a 40-year high.
Fed officials predict three rate rises this year, with a further five by the end of 2024 as it moves toward its goal of bringing inflation to a 2% target and achieving maximum employment.
But the Fed chairman, Jay Powell, has also said that the central bank is watching wage growth closely for further evidence that the economy could turn into a repeating self-reinforcing battle between rising costs and wage gains.
Average pay rose 0.4% in December, indicating that wages rose around 4.8% in 2021. But that’s still beneath the rate of inflation, most recently pegged at 6.8%.
Still, weekly jobless claims are around 200,000 – or at a level below the 2019 weekly average from before the pandemic – but the labor force overall remains about 2.4 million workers below pre-pandemic levels, reflecting ongoing disruptions related to the virus.
Friday’s figures reflect how tricky it is to forecast an economy that’s still being roiled by a pandemic.
ADP Research Institute data released on Wednesday showed that US companies added the most jobs in seven months using data that is less comprehensive than the analysis put out by the labor department on Friday.
Economists had predicted half the number of job gains, with the ADP chief economist, Nela Richardson, saying the hiring was “broad-based”. Higher wages and more attractive working terms may have been behind the surge, but many economists warn that the fast-spreading Omicron variant could affect hiring.
Capital Economics’ Pearce warned that employees off work would still be paid, and therefore counted as employed, and not show up in employment figures in the latest figures.
“The rapid spread of Omicron doesn’t appear to have delivered a big hit to services demand yet, but we expect widespread absenteeism could supersize the economy’s worker shortage this month,” Pearce said.
“The key takeaway for the Fed is that, with few signs of a recovery in labour supply, the continued decline in the unemployment rate and surge in wage growth looks set to be sustained over 2022,” he added.