U.S. unemployment rate drops to pandemic low 3.9 percent
The nation’s unemployment rate fell in December to a healthy 3.9 percent — a pandemic low — even as employers added a modest 199,000 jobs, evidence that they are struggling to fill jobs with many Americans reluctant to return to the workforce.
The drop in the jobless rate, from 4.2 percent in November, indicated many more people found work last month. Indeed, despite the slight hiring gain reported by businesses, 651,000 more workers said they were employed in December compared with November.
Still, the data reported Friday by the Labor Department reflected the state of the job market in early December — before the spike in COVID-19 infections began to disrupt the economy. Economists have cautioned that job growth may slow in January and possibly February because of omicron cases, which have forced millions of newly infected workers to stay home and quarantine. The economy is still about 3.6 million jobs short of its pre-pandemic level.
For now, steady hiring is being driven by strong consumer demand that has remained resilient despite chronic supply shortages. Consumer spending and business purchases of equipment are likely propelling the economy to a robust annual growth rate of roughly 7 percent in the final three months of 2021.
Wages also rose sharply in December, with average hourly pay jumping 4.7 percent compared with a year ago. That pay increase is a sign that companies are competing fiercely to fill their open jobs.
Low unemployment and rapid wage gains, though, could further heighten inflation as companies raise prices to cover rising labor costs. Price increases have already surged to a four-decade high, prompting a sharp pivot by the Federal Reserve, from keeping rates low to support hiring to moving toward raising interest rates to combat inflation.
“Companies are paying up for workers,” said Neil Dutta, an economist at Renaissance Macro Research. “This is consistent with inflation well above 2 percent, which keeps the pressure on the Fed to raise interest rates.”
Among those benefiting from the intense competition for workers is Patrick Freeman, a custodian at a furniture factory in Hickory, North Carolina. In late November, Freeman, 57, was given a permanent job after having spent two years as a temp. Freeman got the good news at a time when many of his colleagues have found other jobs elsewhere, leaving the company short-staffed.
“They’ve scattered,” he said, referring to his fellow employees. “They’re really short in a lot of areas. I’m sticking around.”
Having come on board permanently, Freeman enjoyed a pay jump from $12 to $16 an hour. After a 60-day probation period, he will also receive health, dental, and vision benefits. And he’s eligible for the company’s employee stock ownership program.
More broadly through the economy, though, job growth will likely take a big hit this month from the omicron variant, which has sickened millions of Americans, forced airlines to cancel thousands of flights, reduced traffic at restaurants and bars, and caused some major school systems to close.
That could make it even harder for companies to remain fully staffed and could slow the economy, too.
The wave of infections is also likely weighing on jobs at restaurants and bars. The number of Americans willing to eat at restaurants started to slip in late December, according to the reservations website Opentable. Restaurant traffic was nearly at pre-pandemic levels for much of November but had fallen nearly 25 percent below those levels by Dec. 30.
Omicron might have had some impact on December’s data, with the 199,000 added jobs having fallen well short of what economists had expected. A category that includes restaurants, bars, hotels and casinos gained just 53,000 positions, down from the several hundred thousand a month added earlier this year.
Even with December’s modest gain, 2021 was one of the best years for American workers in decades, though one that followed 2020, the job market’s worst year since records began in 1939.