Employers added only 199,000 jobs in December even before omicron started to surge

Hiring slowed again last month as employers continued to struggle to find workers in an economy now confronting the full impact of the omicron variant.

U.S. employers added just 199,000 workers to payrolls in December, according to data from the Labor Department Friday. That was well below expectations of around 400,000 jobs created, marking a second consecutive month of disappointing employment growth.

However, there were more positive signs as well. The unemployment rate fell to 3.9% in December from 4.2% the month before, while, job gains for October and November were revised upwards by a total of 141,000.

The monthly snapshot reflects conditions about three weeks ago. Since then, there's been a spike in new coronavirus infections tied to the omicron variant, which could further weigh on job gains in the weeks to come.

"We view this as a small window between when the delta variant was fading and before the acceleration and rapid spread of the omicron variant," said Nela Richardson, chief economist of the payroll processing company ADP.

Bars and restaurants added 43,000 jobs in December, while construction crews added 22,000.

Factories have also been eager to hire, despite ongoing challenges in getting parts and raw materials. The manufacturing sector added 26,000 jobs in December.

A survey of factory managers released this week suggests supply chain headaches may be easing a bit, although a new wave of pandemic illnesses could reverse those gains.

"With omicron, it's a speedbump, and we're going to have to fight through it for the next couple of months," said Tim Fiore, who compiles the survey for the Institute for Supply Management.

'The great job hop'

So far, there's been little sign that the omicron surge has reduced the amount of "help wanted" signs going up across the economy.

Employers began the month of December with a near-record number of job openings — 10.6 million — and postings on the job-search website Indeed, for example, held steady through the end of the month.

"Demand for workers, at least from the data on our platform, hasn't dropped significantly because of the recent surge in cases," said research director Nick Bunker of the Indeed Hiring Lab. "That could change fairly quickly, so it's something we'll be keeping an eye on."

Businesses have struggled to find enough workers to meet demand, with restaurants, bars and hotels seeing some of the highest turnover. A record 4.5 million people quit their jobs in November.

Many of those who quit in recent months are not leaving the workforce entirely but taking better jobs elsewhere. As a result, Bunker said it's a mistake to describe this churn as, "the great resignation." He prefers to call it, "the great job hop."

With more job openings than available workers, employees have enjoyed newfound bargaining power to demand higher wages and better working conditions.

Bunker noted, however, that growing concern about the omicron variant might keep some would-be workers on the sidelines, at least temporarily.

"One of the sources of hesitancy among job seekers has been continued fears about the pandemic," Bunker said. "So there's a possibility that right now, maybe for a few more weeks, there's some hesitancy of workers to return to work."

The number of people working or looking for work increased in December by 168,000, after a big gain the month before. There are still 2.1 million fewer people in the workforce now than there were in February of 2020, before the pandemic took root in the U.S.

The monthly report from the Labor Department is based on two surveys — one of businesses and the other of households. The household survey suggested stronger job gains in December, for the second month in a row.

The tight labor market could make inflation worse

The Federal Reserve is monitoring the labor market closely for any sign that rising wages will add to inflation, which is already as high as it's been in nearly four decades.

Minutes from the Fed's most recent meeting showed policymakers were concerned that worker shortages may persist longer than than they'd previously expected, putting upward pressure on prices.

"Many business contacts continued to experience difficulty hiring workers across all skill levels," the minutes said. "Some participants noted that businesses were offering higher wages, larger bonuses, or more flexible work arrangements to compete for workers."

Any sign that higher wages are feeding into inflation would be concerning for the Fed, as it could produce the kind of wage price spiral that contributed to runaway inflation in the 1970s.

That could force the Fed to move more aggressively in raising interest rates. A majority of Fed policymakers have already said they expect at least three-quarter percentage point rate hikes this year. [Copyright 2022 NPR]