As data misses go, this was another big one for the United States jobs market. But it is not all bad news.
The world’s largest economy created a disappointing 199,000 jobs in December, the US Bureau of Labor Statistics said on Friday. That is less than half what many analysts were expecting.
On a brighter note, the nation’s unemployment rate edged down by 0.3 percentage points to 3.9 percent. That is the first time since the pandemic started that the jobless rate has fallen below 4 percent, bringing it within striking distance of the pre-pandemic level of 3.5 percent seen in February 2020.
Moreover, despite the less than stellar headline jobs creation number gleaned from the Establishment Survey conducted by the Bureau of Labor Statistics, the Household Survey, which is done by the Census Bureau, showed 651,000 Americans found work last month.
Still, buried within the unemployment rate data are troubling signs of deepening racial inequality as the jobs market recovers from COVID-19.
The white unemployment rate fell by 0.5 percentage points last month to 3.2 percent, while the jobless rate for African Americans shot up 0.6 percentage points to 7.1 percent.
“The increase in Black unemployment appears to be borne by Black women, who experienced a huge jump in their unemployment rate from 4.9% to 6.2% in December, due in part to lower employment levels as well as an increase in labor force participation,” tweeted Elise Gould, senior economist at the Economic Policy Institute, a progressive think-tank in Washington, DC.
The data for the December jobs report was gathered in mid-month – before Omicron infections had spread widely throughout the US. Some economists are warning that the new variant could knock the wind out of the labour market in January, thanks to flight cancellations and a wave of workers calling in sick.
Absenteeism due to illness is worsening an already acute worker shortage in the US – which is believed to be weighing on jobs creation.
“The muted 199,000 gain in non-farm payrolls and the more muted increase in labour 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,” said Michael Pearce, senior US economist at Capital Economics.
A record 4.5 million Americans voluntarily quit their jobs in November, in a sign of how confident workers feel about their job prospects. Job openings on the final day of November were also near a record high.
To lure scarce job seekers, businesses have been boosting pay and sweetened benefits packages.
That trend continued in December, with average hourly earnings for all employees on private nonfarm payrolls increasing 4.7 percent from a year ago.
The labour force participation rate – which counts people who either have a job or are actively looking for one – was unchanged in December at 61.9 percent. That is 1.5 percentage points lower than pre-pandemic levels.
For the whole of 2021, job growth averaged 537,000 per month in the US. That leaves the economy 3.6 million jobs shy of regaining all of the 22 million jobs lost in the opening months of the pandemic back in 2020.
While that shortfall does not account for growth in the economy or the labour force since then, the data is signalling that the pandemic has altered the US jobs market in ways that economists are still trying to get to grips with.
Several factors are believed to be contributing to the worker shortage in the US, from fear of contracting COVID-19, to ongoing childcare challenges, baby boomers taking early retirement, and workers opting to start their own businesses rather than work for someone else.
The upside for workers is that they have not been in this strong of a bargaining position for years.
But even with last month’s pay bump, soaring inflation is eating into the purchasing power of US households. The Federal Reserve’s preferred gauge of underlying inflation, Personal Consumption Expenditures, surged 5.7 percent in November compared with a year earlier – the sharpest spike in nearly 40 years.
Until late last year, the Fed had prioritised keeping interest rates at historic lows to create fertile conditions for getting Americans back to work. But with inflation on the rise, the Fed signalled in December that is refocusing monetary policy towards reining in inflation.
“This latest jobs report will comfort the Fed into thinking its hawkish policy pivot is justified with the economy making progress toward maximum employment,” said Gregory Daco, chief US economist at Oxford Economics.