“The pace of recovery overall in the job market has been remarkable,’’ said Mike Fratantoni, chief economist at the Mortgage Bankers Association.
Still, the economy has yet to recover from the disastrous loss of 9.4 million jobs — also a record — in 2020. It remains about 3.6 million jobs below its pre-pandemic level.
And hiring slowed sharply this fall. December’s disappointing job gain was calculated came before a surge in COVID cases linked to the omicron variant, suggesting that things could at least temporarily get worse beginning this month.
Here are five takeaways from the December jobs report:
A big reason why hiring has slowed is simply that businesses still can’t find as many workers as they need. In November, employers posted 10.6 million job openings, the sixth straight month above 10 million — a level never reached until this year in data going back to 2000. For every unemployed American, there are now 1.4 jobs.
With their services in high demand, many workers are capitalizing on a tight labor market to seek or take better offers: A record 4.5 million quit their jobs in November.
“By virtually any measure, this is a jobs market that favors workers and is challenging employers,’’ said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “The slowdown in job creation doesn’t reflect soft demand but the growing difficulty in filling those openings. Tight labor market conditions are likely to persist well into 2022.’’
Contributing to the diminished supply of workers have been an increase in early retirements since the pandemic struck and a drop in immigration. In addition, some Americans are wary about returning to work in an unpredictable health crisis. And others are struggling to find childcare at a time when its cost and availability have become problematic and school schedules have been disrupted by COVID.
GOOD NEWS ON UNEMPLOYMENT
Falling unemployment isn’t always good news. Sometimes the jobless rate can drop for the wrong reason — because people who are out of work become so discouraged that they stop looking for jobs. Once people stop looking for work, the government no longer classifies them as unemployed.
But last month’s drop in the unemployment rate — to 3.9%, a pandemic low, from 4.2% in November — was encouraging. The labor force, made up of people who either have a job or are looking for one, rose by 168,000 in December. The number who said they had jobs shot up by 651,000. And the ranks of the unemployed fell by 483,000.
“The evidence is overwhelming that the labor market is exceedingly tight,’’ said Stephen Stanley, chief economist at Amherst Pierpont Securities. “The unemployment rate sliding below 4% far ahead of schedule is the highest-profile signal of that."
A TALE OF TWO SURVEYS
Why did the jobs report send such mixed signals — a tepid job gain but tumbling unemployment?
The explanation lies in the fact that the Labor Department compiles the monthly jobs report from two separate surveys. One survey determines how many jobs employers added, based on their payrolls. The other survey is done of households and is used to calculate the unemployment rate. The two surveys sometimes tell different stories in a given month, though the discrepancies usually narrow over time.
For the payroll survey, the government asks mostly large companies and government agencies how many people they employed that month.
But to determine unemployment, it asks households whether the adults living there are working. Those who aren't working but are looking for a job count as unemployed.
Unlike the payroll survey, the household survey counts farm workers, the self-employed and people who work for new companies. It also does a better job of capturing employment at small businesses.
But the household survey is less precise. The Labor Department surveys just 60,000 households. That’s far fewer than the 145,000 private and government employers it surveys for the payroll report.
The shortage of workers is forcing businesses to pay more, contributing to a resurgence of inflation. Hourly wages rose 4.7% over the past year. In the leisure and hospitality sector, including restaurants and hotels, hourly pay shot up 14.1% from December 2020.
To offset the higher cost of labor and materials, businesses are raising prices. Consumer prices jumped 6.8% in November from a year earlier, the biggest gain in nearly four decades.
“It is hardly surprising that employers are having to pay up, given the shortage of qualified labor,’’ Joshua Shapiro, chief U.S. economist at the Maria Fiorini Ramirez Inc. consultancy, wrote in a commentary.
Rising pay, he added, “threatens to boost inflation in the service sector, where labor is a critical element of the cost structure.’’
New hiring at service-sector companies, which account for 84% of private-sector U.S. jobs, fell to 157,000 last month, the fewest since January 2021. Retailers actually shed 2,100 jobs in December after having cut 13,300 in November. Leisure and hospitality, which added an average on 228,000 jobs a month from January through November last year, tacked on just 53,000 in December.
Healthcare and education companies added 10,000 jobs last month, the fewest since January 2021.
The weak job growth in such industries "underscores the acute labor shortages they’ve been grappling with as workers face increasing pressure and health risks from the lingering pandemic,’’ economists Lydia Boussour and Gregory Daco of Oxford Economics wrote.
They also noted that childcare providers have lost jobs for three straight months, “a sign that it will take some time for childcare disruptions to fully dissipate.’’