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U.S. job growth underwhelms in December; unemployment rate dives to 3.9%

Washington, U.S. employment increased far less than expected in December amid worker shortages, and job gains could remain moderate in the near term as spiraling COVID-19 cases disrupt economic activity.

But the jobs market is rapidly tightening, with the Labor Department’s closely watched employment report on Friday showing the unemployment rate tumbling to a 22-month low of 3.9% from 4.2% in November.

The second straight big monthly decline in the jobless rate occurred even as more people entered the labor force, Reuters reported.

The employment report painted a picture of an economy that closed 2021 on a high note, with a record 6.4 million jobs created last year. This was the largest annual increase in employment since record-keeping started in 1939, a fact that is likely to be highlighted by President Joe Biden, who celebrates his first anniversary in the White House later this month.

“The U.S. labor market may have lost a little momentum at the end of a stellar year, largely due to the lack of available workers rather than available positions, but it is holding up nicely, at least so far,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

“January will paint a weaker picture, and the remaining months are in the hands of the latest COVID wave.”

Nonfarm payrolls rose by 199,000 jobs last month, the survey of establishments showed.

Data for November was revised up to show payrolls advancing by 249,000 jobs instead of the previously reported 210,000. Employment is 3.6 million jobs below its peak in February 2020.

Economists polled by Reuters had forecast payrolls would rise by 400,000 and the unemployment rate to dip to 4.1%. Payrolls growth estimates ranged from as low as 150,000 jobs to as high as 1.1 million.

The underwhelming job growth in December likely reflects labor shortages as well as anomalies with the so-called seasonal adjustment, the model used by the government to strip out seasonal fluctuations from the data. There were 10.6 million job openings at the end of November.

Employment was unlikely impacted by surging infections driven by the Omicron variant of COVID-19.

The government surveyed businesses and households for last month’s employment report in mid-December just as Omicron was barreling across the country. The variant’s hit to payrolls is likely to be felt in January.

U.S. stocks opened lower. The dollar (.DXY) fell against a basket of currencies. U.S. Treasury yields were higher.

Job gains last month were led by the leisure and hospitality sector, which added 53,000 positions. Professional and business services payrolls rose by 43,000 jobs.

Manufacturing added 26,000 jobs, while construction employment rose 22,000.

There were also gains in transportation and warehousing as well as wholesale trade and mining. Government employment fell by 12,000 jobs.

The United States reported nearly 1 million new coronavirus infections on Monday, the highest daily tally of any country in the world.

Airlines have canceled thousands of flights and some school districts have suspended in-person learning.

Some working parents may have to take on childcare duties, with the reversion to online learning. People who are out sick or in quarantine and do not get paid during the payrolls survey period are counted as unemployed even if they still have a job.

There are more signs some unemployed people are stepping back into the labor market following the end of supplemental government-funded jobless benefits early in the fall. But the reentry could be slowed by soaring Omicron cases.

The survey of households, from which the unemployment rate is derived, showed 168,000 entered the labor force last month.

The household survey also showed an increase of 651,0000 in employment, which accounted for the three-tenths-of-a percentage-point drop in the unemployment rate.

According to the household survey, the number of people who reported that they had been unable to work because their employer closed or lost business due to the pandemic dropped by 539,000 in December.

Still, the labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 61.9%. Participation has been slow to improve since falling to multi-decade lows early in the pandemic.

Economists at Goldman Sachs expect participation will remain about half a percentage point below the pre-pandemic demographic trend at the end of the year, with most of the early retirees and some of the younger and middle-aged workers staying out of the labor force.

The unemployment and participation rates are being closely watched by the Federal Reserve as it prepares to start raising interest rates this year.

Minutes of the Fed’s Dec. 14-15 policy meeting published on Wednesday showed officials at the U.S. central bank viewed the labor market as “very tight.”

Tightening labor market conditions were highlighted by a solid 0.6% increase in average hourly earnings last month after a rise of 0.4% in November.

The annual increase, however, fell to a still-high 4.7% from 5.1% in November. This is the result of last year’s big gains falling out of the calculation.

Though inflation has outpaced wage gains, many consumers have continued to spend because of massive savings and increased job security, underpinning the economy.

Growth last year is expected to have been the strongest since 1984.

Source: Bahrain News Agency