Hiring Stalled in December

Job creation was well below expectations as 2021 came to an end, according to the latest employment report from the Bureau of Labor Statistics.

U.S. employers added 199,000 new jobs in December 2021, the second straight month of sluggish growth. Economists had estimated that over 400,000 new jobs would be added last month. Meanwhile, the unemployment rate dropped to 3.9 percent from 4.2 percent in November.

But a record 6.4 million jobs were added in 2021 overall as the nation continued to recover from 2020, the worst year ever for job losses, caused by the COVID-19 pandemic. The labor market has recouped 84 percent of the 22.4 million jobs lost early in the pandemic, leaving it 3.6 million jobs shy of its pre-pandemic level.

"Today's jobs report is a disappointing bookend to a historic year in the job market," said Daniel Zhao, Glassdoor senior economist.

"The new year is off to a rocky start," said Nick Bunker, director of research at the Indeed Hiring Lab. "The labor market continues to present us with some confusing signals. Payroll growth once again came in under expectations while the unemployment rate shows a continued swift drop in joblessness. Both sides of today's report agree the labor market is recovering. The disagreement is just over how fast it is happening."

Sluggish labor supply is one of the main reasons for the recent underperformance, suggested Julia Pollak, chief economist at ZipRecruiter. "Labor supply, not labor demand, appears to have been the limiting factor in recent months," she said. "People who have been actively looking for work have been finding it. But many people remain reluctant to return. Workers have been particularly reluctant to return to jobs in nursing homes and schools—jobs that require face-to-face interaction and provide little flexibility in institutions not known for agility." 

Pollak added that over the course of 2021, the number of unemployed people has fallen by 4.5 million, but the labor force has only grown by 1.6 million. "There are now only 602,000 more unemployed people than there were before the pandemic, when the unemployment rate was 3.5 percent. But there are still 2.3 million fewer people in the labor force."

Becky Frankiewicz, the president of ManpowerGroup, North America, said that the disappointing jobs report suggests "we have some work to do to address supply and match challenges. We know that demand for workers remains very high—there were more than 11 million open jobs in our country in December, yet we can see this demand is not translating to positions filled."

Notably, the December employment data was collected before the rapidly spreading Omicron variant of COVID-19 affected the labor market. Omicron-related impacts to the monthly labor market data are likely to appear in next month's report.

"New cases of COVID-19 have skyrocketed to record highs in recent weeks, casting a pall over today's report and threatening to throw the recovery into reverse as we enter the new year," Zhao said.

Hiring Slows Down

Many of the service-related sectors hardest-hit by the pandemic reported muted hiring in December, even with elevated consumer demand. Leisure and hospitality jobs rose by 53,000 last month, up from November's gain of 41,000, but well below the 211,000 jobs added in October. Leisure and hospitality employers are still over 1 million jobs below pre-pandemic payroll levels. Employment in restaurants and bars rose by 43,000 in December but is down by 653,000 since February 2020.

Other industries that experienced a deceleration in hiring in December include transportation and warehousing jobs, which rose by just under 19,000 after a rise of more than 42,000 in November, and professional and business services positions, which rose by 43,000 after a gain of 72,000 in November.

Strong holiday demand was not enough to drive job gains in retail, which lost over 2,000 jobs, though transportation and warehousing continued to add jobs, Zhao said. "These industries will be important to watch in January to see if employers facing labor shortages decide to lay off seasonal workers or convert them into full-time workers."

Construction employment rose by 22,000 in December, following monthly gains averaging

38,000 over the prior three months. Construction employment is 88,000 below its February 2020 level.

But employers remain in hiring mode, advertising for a record number of open jobs. "Hospitality and services are recovering, non-COVID-related health care is bouncing back, and HR is now 2 percent of all open roles," Frankiewicz said. "Jobs that emerged with strength in the pandemic are now a standard in the market, such as operations and logistics demand, IT and tech, and even marketing and PR has doubled as companies reposition themselves for the new era."

Unemployment Drops

The unemployment rate fell to a new pandemic-era low in December, as the number of unemployed people decreased by 483,000 to 6.3 million. In February 2020, prior to the COVID-19 pandemic, the unemployment rate was 3.5 percent, and the unemployed numbered 5.7 million.

"Unemployment dropped as employment rates have increased," Bunker said. "Noticeably, the prime-age employment rate rose to 79 percent and is on track to hit its pre-pandemic level later this spring. Concerns about the stubborn flatlining of the overall labor force participation should take into consideration that employment for this core demographic group continues to rise."

The number of people considered long-term unemployed—those jobless for 27 weeks or more—declined by 185,000 to 2 million in December. This total is down from 4 million a year earlier. The long-term unemployed accounted for 31.7 percent of the total unemployed in December.

A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons fell to 7.3 percent, down from 7.7 percent.

The drop in unemployment came even though the labor force participation rate was unchanged at 61.9 percent, remaining below its 63.4 percent level in February 2020.

"If job openings from November held steady into December, there would be 4.2 million more job openings than unemployed workers, highlighting that labor shortages are here to stay as 2021 ends," Zhao said.

Wages Up, (But Really Down)

The tight labor market continues to produce solid wage gains, on paper. Average hourly wages increased 4.7 percent in December from a year earlier, holding well above the wage growth of roughly 3 percent in the years before the pandemic.

But in the meantime, inflation has soared, taking a big bite out of that growth. "While employers are raising nominal wages briskly, inflation is eroding pay gains for most workers and dampening the power of those increases to draw workers in off the sidelines," Pollak said.  

Frankiewicz added that "With more open jobs than available workers and wages increasing among white-and-blue-collar jobs alike, employers must turn their focus towards compensation necessary to attract and retain strong talent."

A New Year

The unsatisfying employment report from December comes at a critical juncture for the U.S. labor market as rising COVID-19 cases threaten to hamstring an economic recovery that was primed to accelerate in 2022.

"It will likely continue to be difficult to hire in 2022," Zhao said. "In the short-term, the Omicron variant is likely to dampen economic activity. The pandemic remains a barrier to many Americans who would otherwise be available to work. Once again, the pandemic is back in the driver's seat."

Andrew Hunter, co-founder of London-based job search engine Adzuna, expressed more optimism, saying that while fears of Omicron will continue to keep many workers on the sidelines, the momentary pause will not dent the hot job market overall. "Employers still need to hire to meet high demand," he said.