By Reade Pickert
The U.S. unemployment rate fell below 4% and wages jumped last month, adding to evidence of a tight labor market that’s expected to help spur Federal Reserve interest-rate liftoff as soon as March despite disappointing payroll growth.
The jobless rate dropped to 3.9% and monthly wage growth accelerated in December, a Labor Department report showed Friday. A 199,000 increase in nonfarm payrolls followed upward revisions in the prior two months, and the labor force participation rate was unchanged.
The latest employment numbers suggest that despite still-robust labor demand, the factors that have kept a lid on hiring throughout the fall — a lack of childcare, virus fears, large savings cushions — persisted late last year. The omicron variant, driving Covid-19 cases to record highs in recent days, is another wrinkle and poses a risk to the pace of employment growth in early 2022.
The jobs report is made up of two surveys — one of households and one of employers. While the survey of businesses showed disappointing job growth, the household survey posted a marked improvement in employment.
“Both sides of today’s report agree the labor market is recovering,” said Nick Bunker, economic research director at Indeed. “The disagreement is just over how fast it is happening.”
Average hourly earnings rose a larger-than-forecast 0.6% in December from the prior month, matching the largest advance since April. Pay climbed 4.7% from a year earlier. Though rapid inflation is taking a big bite out of those gains, the sustained wage increases highlight employers’ willingness to pay more to attract and retain workers.
Against a backdrop of accelerating inflation, the drop in the jobless rate and faster wage growth may justify a quicker tightening of monetary policy. Fed officials noted at their December meeting that it may become warranted to increase that rate “sooner or at a faster pace than participants had earlier anticipated.”
Traders further increased bets further the Fed will raise interest rates in March. The dollar extended its declines and Treasuries remained weaker after the data reading. Stocks opened lower.
What Bloomberg Economics Says…
“The disappointing monthly change in headline nonfarm payrolls masks what is actually a very strong jobs report…this jobs report likely will alleviate any lingering doubts on the part of more-dovish FOMC members that the final hurdle for liftoff has been met.” — Anna Wong and Andrew Husby, economists
Last month’s jobs gain, which capped the biggest annual payrolls advance on record, compared with the median forecast of 450,000 in a Bloomberg survey of economists. The unemployment rate was projected to fall to 4.1%.
The survey period for the jobs report ended mid-month, so omicron-related impacts later in December will be reflected in the January report.
Industry Breakdown
The moderate advance in December was led by leisure and hospitality payrolls, which climbed 53,000. Professional and business service employment rose, while retail trade payrolls declined.
Meanwhile, both manufacturing and construction businesses reported solid hiring gains last month, a welcome sign that capacity constraints at factories and among builders may soon start to ease.
The report also includes routine revisions to the seasonally adjusted household survey data over the past five years. That survey is used to calculate statistics like the unemployment rate and labor force participation.
Depressed workforce participation combined with record quits levels has created a staffing nightmare for businesses. That’s led to an extremely low level of layoffs and exacerbated the latest impact of omicron on businesses, prompting a host of temporary closures and canceling thousands of flights.
Recent earnings calls suggest ongoing staffing challenges well into 2022. Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., said on the homebuilder’s earnings call last month that labor shortages along with supply chain disruptions “are not just impacting the homebuilding industry, but they’re wreaking havoc on just about every industry across the globe.”
Structural factors are at play as well. A combination of declining birth rates, slowing migration and early retirements could lead to years — even decades — of worker shortages.
The Labor Department’s report showed the employment population ratio — or the percentage of the population that is currently working — increased to 79% in December among those ages 25-54. That was the highest since March 2020.
Looking back, the report also emphasizes the labor market’s unprecedented recovery from the Covid-19 pandemic. The U.S. added 6.45 million jobs last year, while the unemployment rate fell 2.8 percentage points to less than 4% for the first time since February 2020.
Demographic Breakdown
- Unemployment rate among Black Americans rose to 7.1% from 6.5%, while other racial groups registered declines
- Participation rate among those age 25 to 54 was unchanged at 81.9%; for women in that group it increased
- White workers saw largest improvement in their unemployment rate, which dropped to 3.2%
More stories like this are available on bloomberg.com.
