US employment growth slowed sharply in December, according to data released Friday by the Bureau of Labor Statistics, suggesting that the labor market recovery may be slowing.
However, if you look at the headlines in which only 199,000 jobs were created, a different picture emerges: Economists argue that the labor market is much stronger than it initially appears and, in fact, holds one of the most solid positions in history.
“The job market is hot,” said Rick Rieder, BlackRock’s chief investment officer, global fixed income. “It is probably the hottest that has ever been.”
Here is the evidence economists, investors, and business leaders see:
A falling unemployment rate
Despite the slowing pace with which employers are creating jobs in the world’s largest economy, the unemployment rate has plummeted in recent months. At 3.9 percent, it is now at its lowest level since the pandemic.
To calculate the unemployment rate, the BLS asked around 60,000 households about their monthly gainful employment. In December 651,000 jobs were created, far more than the headline of 199,000.
The latter figure comes from another source, the employer-oriented “company survey”, which surveys around 144,000 employers and is affected by data distortions caused by the pandemic.
Similar dynamics played out last month, with the household survey suggesting employment growth of 1.1 million. This helped bring the unemployment rate down to 4.2 percent and offered better prospects for the job market than the 210,000 jobs reported in the first November figures.
‘The Great Resignation’ and record vacancies
As the number of Americans who have left their jobs hit record highs in recent months, the existing labor shortage has worsened.
More than 4.5 million workers quit in November, BLS figures this week showed, beating the previous record of 4.4 million in September and well above 4.2 million in October.
This has resulted in a near-record number of job openings, with 10.6 million vacancies at the end of November, just below the 11.1 million positions reported a month ago.
Economists have dubbed the trend “Great Resignation” as workers benefit from an aggressive search for new employees that has led employers to raise wages to stimulate demand.
Tyson Foods warned in its latest earnings announcement that competition for talent “is affecting our operational efficiency,” and FedEx said the labor shortage cost approximately $ 470 million last quarter.
Meanwhile, Norfolk Southern’s chief financial officer, Mark George, told analysts in December that an “incandescent” truck market, strong hardware store, and Amazon warehouse “popping up everywhere” now mean “people have many options” . .
Covid-related concerns and childcare issues have also deterred workers from returning to work faster, which has resulted in a more subdued recovery in the proportion of employees or job seekers.
The so-called participation rate improved further in December to 61.9 percent, but is still more than 1 percentage point below the level before the pandemic.
The participation rate of the 24 to 54 year olds is 81.9 percent higher, but also similarly lower than in February 2020.
Rising wage growth
To attract workers, employers have hiked wages so sharply that economists and Federal Reserve officials say they are watching the rise closely for signs that it is leading to sustained higher inflation.
Fast food restaurants, retailers and logistics companies are increasing their conditions for starters. The hardware store dealer Lowe’s recently warned of higher labor costs as a result of the labor shortage.
The average hourly wage rose by 0.6 percent compared to the previous month, which corresponds to an annual increase of 4.7 percent.
In its most recent survey of CEOs of large corporations, the Business Roundtable found that higher labor costs caused by labor shortages were high on the list of CEOs’ concerns and issues such as supply chain disruptions and the rising cost of materials.
“It’s a tight job market and it takes a lot of ingenuity, creativity and effort to attract and retain employees to the best of their ability,” said Sean Connolly, CEO of ConAgra, told analysts this week. “I feel good where we are right now, but there’s no denying it, it’s a daily challenge.”
Data distortion
Economists have also recognized that the initial estimate for total employment growth could be revised significantly in future reports due to the difficulty of economic measurement during the pandemic.
The December payroll updates in February and again in March. It is likely that the number was not given enough; Upward revisions created more than 1 million jobs during 2021 – a record high for a single year.
Measuring payroll during the pandemic is particularly challenging for two main reasons. First, companies have been slower to respond to the company survey from which the salary estimates are derived, meaning that the initial estimate is based on incomplete data.
In December, 71 percent of companies responded on time, compared with 81.5 percent in December 2019. Economists say most of the activities, such as an initial underestimation of payroll, are companies.
Second, the pandemic disrupted seasonal patterns and made the statistical models that the BLS uses to filter seasonal effects, such as vacation rentals, more difficult from the raw data.
In December, the raw numbers showed employment growth of 72,000, which the BLS revised upwards by 127,000. This is smaller than the typical December adjustment, according to Gregory Daco, chief US economist at Oxford Economics. The seasonal adjustment model is also optimized as data comes in, which will lead to further revisions.
