The mixed picture of the US labor market that emerged in 2021 is going nowhere this year.
While the unemployment rate has been dropping for months, the participation rate has barely budged. Wages are increasing, but not enough to compensate for inflation. Job vacancies remain well above pre-pandemic levels and employers are struggling to find skilled workers. And the virus itself continues to disrupt child care and raise health concerns, keeping many Americans on the sidelines.
Most of these trends are expected to continue into at least the first half of 2022, but economists are hopeful that – if the virus is under control – labor supply will begin to normalize later this year.
Government figures on Friday are expected to show employers added 433,000 workers by the end of 2021, the median estimate from a Bloomberg survey of economists. The labor force participation rate is expected to climb to 61.9%, still well below the 63.4% observed before the pandemic.
The investigation period for the jobs report ended in the middle of the month, so the omicron variant of the coronavirus is unlikely to have had a significant impact on the labor market in the latest data.
“We’ll know if we’re on track during the first few months, although January can be a bit of a problem with omicron,” said Brett Ryan, senior US economist at Deutsche Bank Securities Inc. “It may take up to what the summer to know if the labor market is completely healed, to get an idea of the proximity of full employment. “
Here’s what could be in store for various aspects of the job market in 2022:
• Participation in the labor market. The labor force participation rate – the share of Americans working or looking for work – stagnated for the most part in 2021.
While some of the factors that have kept Americans from re-entering the workforce may ease in 2022, concerns about the pandemic itself will continue to hold back many job seekers, said Nick Bunker, an economist at Indeed Inc. also prevents some people from seeking employment, he said.
There’s another reason for the slow recovery in participation: Many older Americans have retired in the past two years. “These are a large number of missing workers who we don’t think will come back,” said Sarah House, senior economist at Wells Fargo.
A difference in 2022 from recent years could be that larger-than-usual financial buffers – due to generous government stimulus packages and unemployment benefits – are fading as households cut back on savings. This has encouraged some marginalized workers to seek employment.
Initial jobless claims in the United States rose last week, but remained near all-time lows as the labor market resisted the recent surge in COVID-19 cases.
• Hiring. Economists are forecasting strong payroll growth this year, but “we’re probably not going to see the big monthly increases we made last year because the pool of unemployed has certainly shrunk,” Ryan said.
At the start of 2021, nearly 10 million jobs were missing in the labor market compared to pre-pandemic levels. Today, there are less than 4 million jobs to be recovered.
The leisure and hospitality, healthcare and education sectors are expected to generate payroll gains in 2022, as these sectors have the most leeway to return to the levels observed in February 2020. These are also the industries most affected by the increase in coronavirus infections, the progress of the pandemic will therefore play a major role in their recovery.
“There is still a lot of uncertainty about the pandemic and how the public health situation will evolve,” said Daniel Zhao, senior economist at Glassdoor Inc. “Progress on the pandemic is substantial, but it is clear that the pandemic is not yet fully under control It will take time.
• Unemployment rate. With job vacancies set to remain high due to strong demand for labor, Americans who are actively looking for work are expected to find employment relatively quickly.
As more people move into private sector jobs, the unemployment rate is expected to fall below the Federal Reserve’s “full employment economy estimate” earlier this year, said Stephen Stanley, chief economist at Amherst Pierpont Securities, in a note.
Economists currently expect the unemployment rate to fall to 3.6% by the fourth quarter, near the lowest level of 3.5% before the pandemic.
But differences between demographic groups remain. The unemployment rate for black Americans is almost double that of white Americans. Economists and policymakers, including those at the Fed, will be watching to see if the gap narrows throughout this year.
• Wages. Strong demand for workers, coupled with very low supply, fueled strong wage increases in 2021. Although the pace of wage growth may slow if more Americans enter the workforce this year, workers should retain much of the bargaining power they had over the past 12 months, especially with inflation rising the most since the 1980s.
“As the supply comes back into the market, it might take some fervor off the recent pace,” House said. “But it is still very tense” which will encourage “another year of growth in labor income, especially coupled with a sustained overall pace of hiring.”
Bloomberg’s Reade Pickert contributed to this report.
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