The nation’s unemployment rate fell in December to a healthy 3.9 percent — a pandemic low — despite employers adding only 199,000 jobs, indicating that employers are struggling to fill positions with many Americans hesitant to return to work.
The drop in the unemployment rate, from 4.2 percent in November to 4.2 percent in December, indicated that many more people found work last month. Indeed, despite a slight increase in hiring reported by businesses, 651,000 more workers reported being employed in December compared to November.
Nonetheless, the Labor Department data released on Friday reflected the state of the job market in early December, before the surge in COVID-19 infections began to disrupt the economy jobs. Economists have warned that omicron cases, which have forced millions of newly infected workers to stay home and quarantine, may cause job growth to slow in January and possibly February. The economy is still about 3.6 million jobs short of where it was before the pandemic.
For the time being, steady hiring is being driven by strong consumer demand, which has remained resilient in the face of chronic supply shortages. Consumer spending and business equipment purchases are expected to propel the economy to a robust annual growth rate of around 7% in the final three months of 2021. According to the Conference Board, Americans’ confidence in the economy increased slightly in December, implying that spending was probably healthy for much of last month.
Wages rose sharply in December, with average hourly pay increasing by 4.7 percent over the previous year. That pay raise indicates that businesses are vying hard to fill open positions. A record-high wave of resignations, as many workers seek better jobs, is fueling wage increases.
Low unemployment and rapid wage growth, on the other hand, may drive up inflation as businesses raise prices to cover rising labor costs. Price increases have already reached a four-decade high, prompting the Federal Reserve to abruptly shift from keeping interest rates low to support hiring to raising interest rates to combat inflation. Most economists expect the Fed to raise its benchmark short-term rate, which is now near zero, in March and two or three more times this year.
“Companies are paying up for workers for example amazon remote jobs,” said Neil Dutta, an economist at Renaissance Macro Research. “This is consistent with inflation well above 2%, which keeps the pressure on the Fed to raise interest rates.”
Patrick Freeman, a custodian at a furniture factory in Hickory, North Carolina, is one of those benefiting from the fierce competition for workers. After working as a temp for two years, Freeman, 57, was given a permanent position in late November. Freeman received the good news at a time when many of his coworkers have moved on, leaving the company understaffed.
Freeman’s pay increased from $12 to $16 per hour after he was hired on full-time. He will also receive health, dental, and vision benefits after a 60-day probation period. In addition, he qualifies for the company’s employee stock ownership program.
Becky Frankiewicz, president of staffing giant ManpowerGroup North America, stated that many of Manpower’s clients are transitioning employees from temporary to permanent status because, with workers scarce, they want to “lock people up.”
According to Frankiewicz, absenteeism is three times higher than it was in 2021 due to omicron. Despite this, she claims that “no slowdown in demand” for workers has occurred. However, job growth will likely suffer this month as a result of the omicron variant, which has sickened millions of Americans, forced airlines to cancel thousands of flights, reduced traffic at restaurants and bars, and caused some major school systems to close, potentially keeping some parents at home with children and unable to work.
This could make it even more difficult for businesses to remain fully staffed, as well as slow the economy. According to Michael Pearce, an economist at Capital Economics, millions of workers will most likely be quarantined at home next week. Those who are not paid — roughly one-fifth of the U.S. workforce does not have sick leave — will not have their jobs counted by the government. This would reduce the January employment gain reported by businesses.
Even with December’s modest gain, 2021 was one of the best years for American workers in decades, though it came after 2020, the worst year for the job market since records began in 1939 as a result of the pandemic recession. Companies advertised a record number of open positions last year and offered significantly higher pay to attract and retain employees.
Following the pandemic, the government’s survey of company payrolls has become more volatile, with one month’s data frequently followed by a sharply different trend a month or two later. For example, November’s job gain of 210,000 was revised up to 249,000 on Friday, and October’s gain, originally reported at 531,000, was revised up to a solid 648,000.
The December report also reflects a discrepancy in two monthly surveys conducted by the government. A household survey is used to calculate the unemployment rate. This month’s survey found that 651,000 more people reported being employed. A separate survey of employers, known as the payroll survey, revealed that only 199,000 new jobs were created. Though the results of the two surveys typically match up over the long run, they can differ sharply in any one month.