Interpreting December’s weird jobs report

Economists were scratching their heads as the government reported the December jobs numbers. As a reminder, the report is a compilation of two surveys: The “establishment,” or payroll survey, asks employers how many jobs were filled during the month, how much these firms had to pay workers and how many hours were worked. The “household survey” asks respondents whether they were working or actively seeking employment and gathers demographic data about the household.

According to employers, 199,000 jobs were created in December, about half of what was expected by economists, and yet according to the household survey, 651,000 became employed during the month. Huh? One explanation is that the difference between the two surveys could narrow in subsequent months — notably, the previous two months saw upward revisions of 141,000 jobs created, allowing 2021 to be a record-breaking year.

Additionally, some of the outsized growth in the household survey could reflect a catching up after it lagged the payroll survey growth for most of 2021.

Still, there’s something a little weird about the labor market right now. And it appears that the way we measure the changes in the market is not quite capturing the nature of what’s happening.

Michael Pearce at Capital Economics says to “avoid drawing any strong conclusions ahead of the annual revisions to both sets of figures, due to be released alongside the January data.”

Even if the pandemic-era monthly reports are tough to interpret in real time, it’s probably smarter to look at the overall trend. Here’s the big picture/good news: the U.S. labor market is broadly healing, but it is doing so in fits and starts, as COVID and its variants ebb and flow. In 2021, a record 6.4 million jobs were created, after tumbling by a record 9.4 million jobs in 2020. After losing 22.4 million jobs in the spring of 2020, the economy has recouped 18.8 million, or 84%, leaving it 3.6 million jobs below pre-crisis level.

The unemployment rate, which rose to a high of 14.7% in April 2020, has tumbled to a pandemic low of 3.9% and is closing in on the 50-year low of 3.5% clocked in February 2020. Additionally, other reports have indicated that the labor market remains tight. The Job Openings and Labor Turnover Survey (JOLTS) for November showed

10.6 million job openings, up 56% from a year ago. With so many openings, workers are confident in their ability to land a new position. The number of people quitting reached a new high of 4.5 million, which is about 25% above the pre-pandemic peak.

Economist Joel Naroff highlights the fact that the 2021 labor market progress is clear when you look at the number of people unemployed, which is down by 4.5 million. “There are only about 600,000 more people unemployed now than in February 2020,” which is why “businesses are doing what they can to keep workers” — including greater flexibility and pay increases. Wages increased by 4.7% from a year ago, and Grant Thornton chief economist Diane Swonk said “the largest increase was in low-wage jobs.” That’s a good thing, because with inflation running at a four-decade high of 6.8%, they’ll need that extra money.

The December jobs report, as weird as it was, paints a picture of an economy that continues to create jobs and pay workers more. Along with other data, the report’s less-than-stellar top line job number will not deter the Fed from raising short-term interest rates as soon as March, as its focus turns away from jobs and toward inflation.