U.S. job growth faltered in December, just before the rapid spread of the new omicron coronavirus variant cast a fresh threat over the economy and its recovery from the pandemic.
The Labor Department said in its monthly payroll report released Friday that payrolls in December rose by 199,000, sharply missing the 400,000 jobs forecast by Refinitiv economists. The unemployment rate, which is calculated based on a separate survey, dropped to 3.9% from 4.2% — the lowest level since the pandemic began.
The labor market had been gaining momentum after a delta-induced slowdown over the summer, but the latest figure represents the second consecutive month of worse-than-expected growth, following upwardly revised gains of 249,000 in November and 648,000 in October. The last time job growth was this slow was in December 2020, when employers cut 306,000 positions.
The figures suggest that despite high demand for workers, businesses are still struggling to attract new employees as factors like a lack of childcare, virus fears and large stimulus savings persevere. The labor force participation rate was unchanged at 61.9% as the labor shortage persists, despite the lower-than-expected unemployment drop.
Rising virus cases also pose a new risk to the labor market in 2022: The December report only includes data from the first half of the month, before a stunning rise in cases driven by the highly transmissible omicron variant. The U.S. is now reporting a seven-day moving average of more than 540,000 cases.
"Today's jobs report is a disappointing bookend to a historic year in the job market," said Daniel Zhao, senior economist at Glassdoor. "The year ended on a sour note, with job gains slowing even more than in November. New and unpredictable waves of COVID-19 variants threaten to throw the recovery into reverse, showing that we’re still at the mercy of the pandemic."
While it's still unclear what the fast-spreading variant will ultimately mean for the health of the economy, its effects on daily life have already been felt: Thousands of flights have been canceled, Broadway shows are shuttering their doors and a growing number of schools have postponed their reopenings.
In all, the economy gained about 6.4 million jobs over the duration of 2021, or an average of 537,000 per month – more than in any year on record. But the nation remains 3.6 million jobs short of pre-pandemic levels in February 2020. Job growth last month was strongest in the leisure and hospitality sector, which added 53,000 positions, and professional and business services, which saw an increase of 43,000.
The Federal Reserve has been closely tracking the jobs data as it balances its withdrawal of pandemic support for the economy with its dual mandate of stabilizing prices and working toward maximum employment. Hawkish minutes released this week from the Fed's Dec. 14-15 meeting suggest that policymakers are prepared to accelerate the normalization of policy in order to combat the hottest inflation in nearly four decades, including raising interest rates and running down their $8.8 trillion balance sheet.
"Inflation is the main concern for the Federal Reserve, and they are going to go ahead with rate hikes and potentially balance sheet run-off in order to remove monetary accommodation from the economy and markets," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "The report today is unlikely to do anything to change the Fed’s mind in terms of an accelerated rate hike and balance sheet management approach."
Officials now project rates to stand at 0.9% at the end of 2022, 1.6% at the end of 2023 and 2.1% at the end of 2024.