But Once Again Good Details; Unemployment Rate Down to 3.9%
- U.S. headline job growth was disappointing at 199,000, but that number is likely to be revised higher over the next couple of months.
- The unemployment rate fell to 3.9% in December and is rapidly approaching the pre-pandemic rate of 3.5%.
- The labor force increased for a third straight month.
- Despite the soft headline number, the labor market is rapidly improving heading into 2022, and is approaching full employment.
- The omicron variant is a downside risk to the near-term job market outlook.
The U.S. economy added 199,000 jobs in December, according to a survey of employers from the Bureau of Labor Statistics. This was well below the consensus expectation for an increase of 400,000. Once again, however, the details of the report were much better than the headline number. In particular, job gains for previous months were revised higher. Job growth in November was revised up to 270,000, from the initially reported 210,000. And job growth in October saw another big upward revision to 648,000, from the 546,000 reported last month, and the 531,000 in the preliminary estimate. Revisions to job growth in recent months have been upward and big, and so the December initial estimate of a soft 199,000 should be regarded with skepticism. Through December, the labor market has recovered almost 19 million of the 22 million jobs lost in March and April of 2020 due to the pandemic.
Private-sector employment increased by 211,000 in December, with government employment down by 12,000. The three-month moving average of job growth through December was a solid 365,000, well above the pace prior to the pandemic.
The unemployment rate fell to 3.9% in December, down from 4.2% in November. After peaking at 14.8% in April 2020, the unemployment rate is quickly approaching the 3.5% rate from before the pandemic. According to a survey of households, different from the survey of employers, employment increased by 651,000 in December.
The labor force-the number of people either working or looking for work in the household survey-rose by 168,000 in December, after an increase of 516,000 in November. The labor force has increased for three straight months, perhaps an indication that people are starting to return to the job market in larger numbers. The labor force participation rate-the share of adults either working or looking for work-was steady at 61.9% in December from November. This is well below the 63% rate prior to the pandemic, but the increase in the labor force participation rate at the end of 2021 is very encouraging.
Goods-producing industries added 54,000 jobs in December, with gains of better than 20,000 in both construction and manufacturing. Private services-providing industries added 157,000 jobs over the month, including gains of 53,000 in leisure/hospitality services and 43,000 in professional/business services.
Average hourly earnings rose a strong 0.6% in December from November, as the tight labor market leads businesses to raise pay to retain their current workers and attract new ones. The average workweek was unchanged at 34.7 hours. With more jobs, a flat workweek, and a higher average wage, aggregate job market income rose 0.8% over the month.
Once again, the headline jobs number was disappointing, but once again, the details were much better. Big upward revisions to job growth in recent months, the strong number from the household survey, very low unemployment insurance claims, and results from other job market measures (ADP, the ISM surveys) indicate that job growth was much stronger in December than the initial figure of 199,000 would suggest. The biggest impediment to stronger hiring in late 2021 was a shortage of workers; although the labor force is gradually increasing, it is still down by more than 2 million from before the pandemic.
The data in the report were collected during mid-December, so reflect little impact from the omicron variant. Unemployment insurance claims data from the very end of December show little weakening in the job market, but omicron could be a negative for the labor market in early 2022.
The decline in the unemployment rate in December, as well as strong wage growth, indicate that the job market is rapidly approaching full employment. With inflation well above the Federal Reserve’s 2% objective and the labor market very tight, the Federal Open Market Committee is likely to raise the fed funds rate sometime in the second quarter of 2022.
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