Omicron Casts Shadow Over Winter Job Gains

CUNA senior economist Dawit Kebede said Friday that weaker-than-expected job gains in December might be followed by more disappointments linked to the resurgence in COVID-19 cases.

Kebede said the U.S. Bureau of Labor Statistics collected the data before the recent surge linked to the Omicron variant.

“The Omicron variant blanketed the nation, turning entire areas into hot spots for community spread,” he said. “Hence, the variant — although less severe than Delta — could temporarily derail progress in subsequent months.”

The BLS estimated there were a seasonally adjusted 149 million non-farm jobs in December, up 4.5% from a year ago and up 0.1%, or 199,000 jobs, from November 2021.

December’s unemployment rate was 3.9%, down from 4.2% in November and 6.7% a year ago.

However, the nation has still not fully recovered jobs lost from the pandemic. In February 2020, the unemployment rate was 3.5%, and the nation had 3.6 million more non-farm jobs than in December 2021.

Kebede and NAFCU Chief Economist Curt Long said improvements shown in Friday’s jobs report would probably be enough to convince Federal Reserve Board members to stay on their hawkish path of raising interest rates this year to control inflation.

“The labor market added fewer jobs than expected in December,” Kebede said. “However, the unemployment rate continued to decline, falling below 4%, which indicates a strong recovery. Overall, the economy added on average 537,000 jobs per month in 2021.

“A 3.9% unemployment rate is good news for the Federal Reserve who is on track to end its stimulus by March in order to fight inflation,” Kebede said.

Long called the December report “another mixed bag” with a disappointing gain of just 199,000 non-farm jobs coupled with another large drop in the unemployment rate.

“Even though the establishment survey failed to hit expectations for headline job growth, it still indicated a strong advance in hourly wages,” Long said.

With the Federal Open Market Committee’s “latest hawkish turn, the committee is likely to receive this report as more evidence that a March rate hike is appropriate,” Long said. “On the bright side, higher earnings and strong household balance sheets create good conditions for loan demand in 2022.”

Mike Fratantoni, chief economist for the Mortgage Bankers Association, took a longer view, drawing optimism from two numbers in December’s report:

1. Job growth averaged 537,000 in 2021. “Although waxing and waning of the pandemic and unusual seasonal patterns led to some month-to-month volatility in job growth, the pace of recovery overall in the job market has been remarkable.”

2. The unemployment rate is now at 3.9%. “The economy is at full employment. Although the labor force participation rate is lower than it was pre-pandemic, it is not moving much right now, suggesting that the unemployment rate will continue to drop in 2022, even if the faster wage growth eventually does bring more workers into the labor force.”

Fratantoni forecast that joblessness will continue falling this year, recovering to the 3.5% pre-pandemic level by year’s end, “which is in line with recent Federal Reserve projections and would support a more rapid normalization of interest rates this year.”

Fratantoni noted that the weakness in non-farm job gains might be a result of the fact that the self-employed are included in BLS’ count of those who are employed in its household survey, but are not included in its count of non-farm jobs in its establishment survey.

“As was the case in November 2021, employment growth of 651,000 in the household survey was much stronger than the 199,000 in the establishment survey, perhaps indicating there are more self-employed and gig economy workers at this stage of the cycle,” he said.

Average hourly earnings in December were 4.7% higher than a year earlier. “The job market is tight, and businesses are having increased difficulty filling the almost 11 million job openings in the economy, even after raising wages,” Fratantoni said.