Despite shortfall in year-end hiring, workers’ wages rise sharply as unemployment rate falls below 4%
The government’s report Friday that employers added a disappointingly low 199,000 jobs in December seemed even more discouraging because the survey was taken before the full impact of the Omicron surge.
Analysts warn that the Omicron variant may yet deal a bigger blow to the labor market in the next couple of months.
Nonetheless, by most counts, the American economy has held up remarkably well. And looking past the one-month jobs report, the country is expected to see not only above-average economic growth in 2022, but millions more new jobs and a full recovery of the labor market.
What’s more, Friday’s report wasn’t all downbeat. The Labor Department’s separate survey of households indicated that thousands more people may be self-employed or working at new or smaller firms that aren’t easily captured during periods of rapid economic transition.
Record numbers of Americans, especially those at the lower end of the earning scale, have been quitting their jobs in search of better opportunities.
“Americans are moving up to better jobs with better pay, better benefits. That’s why they’re quitting their job,” President Biden said Friday, highlighting one of the major labor trends last year. “This isn’t about workers walking away, refusing to work. It’s about workers able to take a step up, provide for themselves and their families.”
If analysts are right about healthy economic growth ahead, that could be very good news for Democrats going into November’s pivotal midterm election. Right now, with inflation rearing its head, the pandemic seemingly out of control, and congressional Democrats unable to agree on a version of Biden’s “Build Back Better,” the party’s prospects look bleak.
Joseph Brusuelas, chief economist at the accounting firm RSM US in New York, said investors may not have liked the jobs number because it fell well short of analysts’ forecast. But “when you take a step back and look at the real economy, this is a good, strong report,” he said.
In fact, the nation’s jobless rate fell to 3.9% in the final month of 2021, sharply lower than the 4.2% in November. That’s down from 6.3% at the start of the year and not far off the decades-low level before COVID-19 hit — something unimaginable a year ago.
And even though December’s payroll job growth was just half of what analysts were expecting, it did not take away from the fact that 2021 saw 6.4 million net new jobs created overall — the most since record-keeping began after World War II.
“It is quite an achievement,” Brusuelas said.
Risks remain, of course, including new variants. High inflation has unnerved consumers, and the Federal Reserve could miscalculate in trying to combat it, triggering a crash in bubble-like stock and other asset markets. Supply chain bottlenecks remain, and there are problems inside the large Chinese economy.
But on many fronts, especially the labor market, where it counts for most Americans, the economy has been doing better than almost anybody expected. Job openings are plentiful, layoffs are very low, wages are rising at the fastest pace in years.
And there’s a good chance the country will see more of the same in the months ahead.
For one thing, despite the record-setting number of infections, Omicron doesn’t appear to be as severe for most patients. And the record so far suggests that each successive variant does less damage to the economy.
Even with the pandemic turning the lives of businesses and households topsy-turvy, consumer spending — which accounts for about two-thirds of all U.S. economic activity — has been very resilient, lifted by trillions of dollars of government support and historically low interest rates.
Retail spending was strong over the holidays, and households across the income spectrum, especially those on the upper end, still have a lot of pent-up demand and extra money to spend, in part from government stimulus checks and other pandemic aid.
Moody’s Analytics estimates households had $2.7 trillion more in personal savings at the end of the third quarter of 2021 than they would have with no pandemic.
By gross domestic product, the broadest tally of economic activity, the U.S. probably grew at about a 5.5% pace last year, according to economic experts at the Fed and private forecasters. That would be the strongest since 1984.
As things stand now, growth in 2022 is projected to slow, particularly during the first quarter with Omicron, but should still run at about 4% for the full year. That would be double the average annual rate of the prior decade.
The U.S. already has fully recovered the GDP lost in the initial months of the pandemic. And by the end of 2022, analysts expect the country to have regained all of the 22 million jobs that vanished with the first blow of COVID in spring 2020.
At the end of last year, the economy was 3.6 million short of jobs it had in February 2020, many of them in leisure and hospitality businesses, as well as health and education services.
Unemployment, which was as high as 14.7% in April 2020, is expected to fall back to the pre-pandemic low of 3.5% this year.
Fed officials and many economists thought it wouldn’t be until the end of 2023 at the earliest for the nation to return to full employment — a condition in which pretty much everyone who wants to work can find a job.
In December, more than 3 million people reported they were unable to work or had hours cut because their employer lost business or closed down due to the pandemic. Another 1.1 million said they couldn’t look for work as a result of COVID-19.
The tight labor market has been giving workers more leverage, resulting in high turnover and in turn bigger wages in many cases.
In December, hourly earnings for all employees in the private sector averaged $31.31 — an increase of 4.7% from a year earlier.
Still, that isn’t keeping up with inflation, which jumped to a nearly four-decade high of 6.8% in November from the prior year.
Higher prices for cars, food, gas and other staple goods have cast a pall over consumers, and it’s put Fed policymakers in the difficult position of determining when and how fast they should raise interest rates.
Hitting the brakes too early could stifle growth and steer the nation into recession, but moving too slowly could feed widespread expectations that prices will remain uncomfortably high for months and years to come, in what could amount to a self-fulfilling prophecy.
At this point, most economists see the rate of inflation slowing this year as high demand for goods recedes with the pandemic, and transportation bottlenecks and shortages of products like semiconductors ease.
Gas prices already are off their recent highs, although analysts worry about rising rents and wages adding to inflationary pressures, as well as the unstable political and economic environment, especially in China, which is critical to the world’s supply chain.
Mark Zandi, chief economist at Moody’s Analytics, sees a mounting threat in the frothy prices of stocks, bonds, real estate and even crypto markets.
Some of the high valuations may be attributed to soaring corporate profits and the rapid economic recovery, he wrote, but “markets appear to have gotten ahead of themselves and are thus vulnerable to significant corrections,” especially as the Fed and other central banks start to pull back on monetary policy support.
“Despite it all, our economy’s ability to overcome the pandemic has been admirable,” he said.
If things go according to script, Zandi added, it will have taken less than three years for the economy to fully recover from the devastating pandemic, a third of the time it took to recover from the global financial crisis.
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