5 Key Lessons From The December Employment Report

2021 Was One Of The Fastest Years Of Job Creation In U.S. History.

At the end of a year in which one of the fastest periods of job creation in American history came to an end, December faltered.

America's businesses, after being hobbled by a labor shortage and recurring coronavirus threats, created just 199,000 jobs in April — the lowest monthly number since December 2020 and only about half of what economists had expected.

The good news was that the economy didn't break down. The unemployment rate plummeted to a historic low of 3.9%. Salaries increased. More people reported being employed in December than in November. And the government revised its count of employment growth in October and November by a combined 141,000 people.

The pandemic has taken the world of work on an unprecedented ride. Governments issued lockdowns and families huddled at home as a health precaution in March 2020, when COVID-19 slammed the United States. Businesses closed or reduced their hours. Tens of millions of employees were laid off across the globe as a result of this pandemic.

The economy took off like a rocket, aided by massive injections of government stimulus — and, eventually, the distribution of vaccines. Last year, employers added 6.4 million jobs for the first time in Labor Department records dating back eight decades. Hiring was up 4.5% last year on a percentage basis, which was the most since 1978..

“The pace of recovery overall in the job market has been remarkable,’’ said Mortgage Bankers Association's chief economist, Mike Fratantoni.

The economy has yet to recover from the devastating 9.4 million losses in 2020, which was also a record. It is still about 3.6 million jobs below its pre-pandemic employment level.

Hiring began to taper off significantly in the fall. The disappointing job growth for December was reported before a spike in COVID cases linked to the omicron variant, suggesting that things may at the very least temporarily get worse beginning this month.

Here are five key points from the December jobs report:

HELP WANTED

Hiring is slowing because businesses can't find as many people as they want. Employers listed 10.6 million job openings in November, the sixth consecutive month above 10 million—a record that wasn't achieved until this year. For every unemployed American, there are now 1.4 opportunities available.

Many people are taking advantage of a tight labor market to seek or accept better offers, according to the BLS. In November, a record 4.5 million workers quit their jobs.   According to Jim Baird, chief investment officer at Plante Moran Financial Advisors:

“By virtually any measure, this is a jobs market that favours workers and is challenging employers ... 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.’’

A scarcity of labor has been exacerbated by an increase in early retirements and a drop in immigration, as well as a rise in early retirement. Some individuals are also hesitant to return to work during an unpredictable health emergency. Others are having difficulties finding childcare at a time when the expense and accessibility have become issues, and school schedules have been disrupted by COVID.

GOOD NEWS ON UNEMPLOYMENT

Unemployment isn't always a cause for celebration. The jobless rate may drop for the wrong reason at times — employees who are unemployed become so discouraged that they stop looking for work. Once individuals give up hope of finding employment, the government no longer considers them to be unemployed.

Last month's drop in the unemployment rate, to 3.9 percent from 4.2 percent in November, was encouraging. In December, the workforce — made up of those who either have or are looking for a job — rose by 168,000 people. The number of individuals claiming they had employment shot up by 651,000 people. And the ranks of the unemployed fell by 483,000. Stephen Stanley, chief economist at Amherst Pierpont Securities, said:

“The evidence is overwhelming that the labor market is exceedingly tight ... 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 conflicting signals, with a modest job increase but declining unemployment?

The answer is in the fact that two separate surveys are used to generate the monthly employment report from the Department of Labor. One survey determines how many jobs new employers created based on their payrolls. The second survey, carried out of households and utilized to calculate the unemployment rate, tells a different tale every month. The two studies sometimes give conflicting information in the same month, although the differences typically lessen with time.

For the payroll survey, the government inquires about the number of employees at large firms and government agencies each month.

To assess unemployment, the survey inquires about whether members of the household are employed. Those who aren't working but are actively seeking employment are considered unemployed.

The household poll, unlike the payroll survey, includes farm hands, self-employed individuals, and those who work for new businesses. It also does a better job of recording employment at small enterprises than the payroll survey.

However, the household survey is less accurate. The Labor Department only surveys 60,000 households. That's a lot less than the 345,000 private and government employers it surveyed for the payroll report.

RISING PAY

A shortage of labor is driving up prices, fueling a resurgence of inflation. Over the previous year, hourly salaries increased by 4.7%. Hourly pay in the leisure and hospitality business, including restaurants and hotels, has risen 14.1% since December 2020.

In order to compensate for the higher labor and material costs, companies have increased their prices. In November, consumer prices rose 6.8% from a year earlier, the biggest increase in nearly four decades.

Joshua Shapiro, chief U.S. economist at the Maria Fiorini Ramirez Inc. consultancy, wrote in a commentary:

It is hardly surprising that employers are having to pay up, given the shortage of qualified labor, ... [Rising Pay] threatens to boost inflation in the service sector, where labor is a critical element of the cost structure.’’

SERVICES STUMBLE

New employment in the service sector, which accounts for 84% of all private-sector jobs in the United States, tumbled to 157,000 last month, the fewest since January 2021. After shedding 13,300 jobs in November, retail businesses eliminated 2,100 posts in December. Leisure and hospitality industries, which added an average of 228,000 new employment every month from January through November last year alone, only managed a gain of 53,000 jobs in December.

Healthcare and education firms added 10,000 new jobs in April, the fewest since January 2021.

The slow job creation 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 consecutive months, “a sign that it will take some time for childcare disruptions to fully dissipate.’’

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