Economy gained just 199,000 jobs in December, far below expectations

The US economy created just 199,000 jobs in December and the unemployment rate fell to 3.9% from 4.2%, capping a year of labor force volatility that matched the contours of the number of Covid-19 cases.

Data for December, released Friday by the Bureau of Labor Statistics, is far from the expectations of economists of 422,000 job creations.

“It is not at all surprising that this month’s employment report was insufficient given the current turmoil and the potential impact of the omicron variant of Covid-19,” said Steve Rick, Chief Economist of CUNA Mutual Group. “Rising inflation and the current supply chain crisis could have major implications for the economy as winter progresses.”

The volatility incurred by omicron … means that today’s data point is fundamentally useless for evaluating tomorrow.

Labor market watchers have suggested even more volatility is on the horizon as omicron’s push throws a wrench in school reopens, corporate return-to-office plans, big events and d other benchmarks of economic normality.

“The volatility incurred by the omicron sweeping across America means that today’s data point is fundamentally useless for evaluating tomorrow,” said George Ball, chairman of financial services firm Sanders Morris Harris.

Economists noted the barrage of mixed messages from recent labor market data: The BLS report came two days after private payroll processor ADP reported that the private sector created 807,000 jobs in December, more double what economists expected, while the Department of Labor’s job postings and Labor Turnover Survey reported Tuesday that a record 4.5 million Americans left their jobs in November. Still, new weekly jobless claims released Thursday revealed a startling increase of 7,000, although at 207,000 the figure remains below historical norms.

The low labor force participation rate adds to the confusion, said Sam Stovall, chief investment strategist at CFRA Research. “A lot of people quit their jobs looking for better opportunities, but you also have baby boomers saying, ‘why do I worry about getting sick at work? And retire, he said – cross-currents that make it difficult to decipher the health of the labor market in real time.

You have a lot of people quitting their jobs in search of better opportunities … and baby boomers say, “Why do I have to worry about getting sick on the job?” ”

Given the retrospective view of the BLS monthly report, which is based on data typically collected around the 12th of each month, the full impact of the ongoing omicron wave is unlikely to show in the data yet, said Tendayi Kapfidze, head of economics analysis at the US bank.

“That’s when there was a lot of news around omicron, but the numbers hadn’t taken off. This suggests to me that these numbers will not have a significant omicron effect, ”he said. “The question for me is, what’s going to happen in January and February? “

“Omicron impacts in three different ways,” Ball said. In the short term, crippling corporate return-to-office plans mean fewer restaurant and store jobs in declining urban cores. In the medium term, the threat of school closures could push more parents, especially mothers, to stay on the margins of the labor market. And in the longer term, consumer demand will evolve differently if people expect Covid to become an endemic public health and economic challenge. Consumer behavior could be particularly impacted if the threat from more virulent strains is high.

Omicron also has threats to labor market inflation. “There is going to be some reluctance on the part of employees to come back to work,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “Employers continue to report how difficult it is to hire. “

An acute shortage of workers could push up wages, leading to higher prices paid by American consumers.

Short-term but acute shortages of workers in key sectors of the supply chain could push up wages, pushing up the prices paid by U.S. consumers. “Because the trajectory of omicron cases has steadily climbed, I think one of the concerns for investors is… the inflationary spike will not occur in Q4 as initially expected, and may not even occur in Q4. first trimester, but could be postponed. outside, ”Stovall said.

This, in turn, has implications for how quickly the Federal Reserve tightens policy by raising rates, said Timothy Horan, director of fixed income investments at Chilton Trust. “The Fed’s focus on full employment needs to change… It is now on a mission to bring inflation down,” he said. “It cannot be delayed by the immediacy of the omicron.”

The minutes of the December Fed meeting, released on Wednesday, signaled that members of the Federal Policy Committee could start raising rates as early as March and plan to reduce the central bank’s balance sheet more quickly to try to fight inflation.

The more hawkish tilt sparked a fall on Wall Street Wednesday afternoon, as investors calculated the impact of higher borrowing costs.

“While interest rates remain unchanged for now, the reduction in the Fed’s monthly bond purchases is expected to begin this month,” Rick said. “We will be keeping an eye out for these items which will continue to create unpredictability for the economy over the next several months.

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