U.S. job growth accelerated in December; Reuters predicts the creation of record jobs for 2021

Written by Lucia Mutikani

WASHINGTON (Reuters) – U.S. employment growth is likely to have risen in December, culminating in a record job creation in 2021, but the job market could temporarily lose its luster as rabid COVID-19 infections cause disruption in businesses and schools.

An employment report closely monitored by the labor ministry on Friday is also expected to show the labor market is tightening rapidly, with the unemployment rate falling to a 22-month low of 4.1% from 4.2% in November. This will sketch a picture of the economy that closed in the middle of the night in 2021, even if the public health picture has not improved as much as officials had hoped.

“Unfortunately, the economy’s path is still tied to a pandemic and Omicron will deal a significant blow to the economy in the first quarter,” said Ryan Sweet, senior economist at Moody’s (NYSE 🙂 Analytics in West Chester, Pennsylvania.

Non-agricultural payrolls are likely to have increased by 400,000 jobs last month after rising by 210,000 in November, according to a Reuters survey of economists. If payrolls met expectations, a huge 6.5 million jobs would be created in 2021.

That would be the biggest annual increase in employment since records began in 1939, which will likely be highlighted by President Joe Biden, who is celebrating his first anniversary at the White House this month.

Still, employment would be about 3.5 million jobs below its peak in February 2020. Estimates ranged from as many as 150,000 to as many as 1.1 million jobs.

The government surveyed businesses and households in mid-December for last month’s employment report, just as the Omicron variant was circulating across the country. The United States reported nearly a million https://www.reuters.com/world/us/us-reports-nearly-1-mln-covid-19-cases-day-setting-global-record-2022-01-04 new coronavirus infected on Monday, the highest daily number of any country in the world.

Airlines have canceled thousands of flights, and some school districts have suspended personal learning. Some working parents may need to take care of their children, with a return to online learning.

People who are sick or quarantined outside and do not receive a salary during the salary survey period are counted as unemployed even if they still have a job in their companies.

“The chaos caused by the rapid spread of the Omicron variant came too late to have a big impact on December’s payrolls, which we estimate have increased by a healthy 350,000,” said Michael Pearce, senior U.S. economist at Capital Economics in New York City. “But the huge number of people told to isolate themselves could lead to a significant drop in payrolls in January.”

Economists expect the number of payrolls in November, the lowest since December 2020, could be revised to a higher level, noting that the response rate to the survey that month was extremely low. The payroll forecast for December is also very uncertain, given the whimsical model used by the government to remove seasonal fluctuations from the data.

SEASONAL ANOMALIES

Economists have noted that anomalies with so-called seasonal adjustment mitigated monthly changes in payrolls both last November and December 2020.

“Unfortunately, those anomalies could get more society on Friday,” said Lou Crandall, chief economist at Wrightson ICAP (LON 🙂 in Jersey City. “We would dismiss disappointment at the reported (payroll) level if seasonal adjustment factors are as stingy as we assumed.”

Profits on payroll below expectations would also be due to acute labor shortages. The government said Tuesday that there were 10.6 million job openings at the end of November https://www.reuters.com/markets/us/record-45-million-americans-quit-jobs-november-2022-01-04 .

In November, there were signs that some unemployed people were returning to the labor market after state-funded unemployment benefits ceased in early autumn. But re-entry could be slowed by spiral Omicron cases.

The labor force participation rate, or the proportion of able-bodied Americans who have or are looking for work, has been slowly improving since falling to its lowest levels in decades since the pandemic began.

Goldman Sachs economists (NYSE 🙂 expect participation to remain about half a percentage point below the demographic trend before the end-of-year pandemic, with most early retirees and some of the younger and middle-aged workers.

The Federal Reserve is closely monitoring unemployment and participation rates as it prepares to begin raising interest rates this year. The minutes of the Fed’s December 14-15 meeting, released Wednesday, show US central bank officials view the labor market as “very tight.” https://www.reuters.com/markets/us/fed-may-need-hike-rates-faster-reduce-balance-sheet-quickly-minutes-show-2022-01-05

The unemployment rate fell by four tenths of a percentage point in November, while the participation rate rose to 61.8% from 61.6% in October.

“A further significant drop ahead of the March meeting would indicate an earlier launch,” said Veronica Clark, an economist at Citigroup (NYSE 🙂 in New York. “If a further increase in participation is accompanied by a mostly stable unemployment rate, the start of the rate increase is more likely to come later in June.”

Tighter labor market conditions have been highlighted by rising wages. The average hourly wage is forecast to increase by 0.4% in December. However, annual growth is expected to fall to a still high 4.2% from 4.8% in November. This is the result of last year’s big gains that fell out of the calculation.

Although inflation outpaced wage increases, consumers continued to spend due to huge savings and increased job security, supporting the economy. Last year’s growth is expected to be the best since 1984.