The U.S. added 199,000 jobs in December, a weak showing.
The data was collected before the Omicron variant tightened its grip.
The American economy stumbled in December, as the slowdown in hiring continued — even before the labor market faced a new threat from the coronavirus.
Employers added 199,000 jobs in December, the Labor Department said Friday, the weakest report of the year. That was down from 249,000 in November. The economy added 537,000 jobs per month on average over the course of 2021, and added more than 6.4 million jobs in total last year.
The unemployment rate fell to 3.9 percent, from 4.2 percent. Paired with strong wage growth — average hourly earnings climbed by 4.7 percent over the year, more than the 4.2 percent economists in a Bloomberg survey expected — the swift decline in the jobless rate seems to suggest that a dearth of available workers may be, in part, what is holding hiring back.
Faltering job growth was especially worrisome because the data released on Friday was collected in mid-December, before the pandemic’s latest wave. Since then, the Omicron variant has ignited a steep rise in new coronavirus cases, driving up hospitalizations, keeping people home from work and prompting fresh uncertainty among employers. Economists are bracing for the surge in cases to further disrupt job growth in January and in the coming months, though it is too soon to say how it will affect the labor market in the longer term.
“I think Omicron will slow hiring in January,” said Nela Richardson, chief economist at the payroll processing firm ADP. “It might hit in early February as well.”
The report sets the tone heading into a crucial midterm election year and could foretell challenges for Democrats, who have struggled to tamp down anxiety about the economy.
The seesawing employment situation underscores the economy’s continued susceptibility to the pandemic, nearly two years on. Although the labor market has brightened, some industries with face-to-face interactions, notably leisure and hospitality, remain extraordinarily vulnerable to case levels.
Many businesses have postponed return-to-office plans, sometimes indefinitely. Restaurants and theaters have increasingly gone dark amid staff shortages and renewed fears of infection. Some schools have returned to remote learning, or are threatening to, leaving many working parents in limbo.
“We’re all sort of at the whims of these variants and surges in cases, and it’s hard to know when they might strike,” said Nick Bunker, director of economic research at the Indeed Hiring Lab. “Any sort of projections or outlook on the pace of gains over the next year or so is still dependent on the virus.”
Although the economy has improved, millions of people have also left the labor market since the pandemic began and are not counted in the official unemployment rate. Many were older and may have retired. But some may be lingering on the sidelines because of health concerns or caregiving responsibilities. Some have become discouraged by the job search or disillusioned with the value of their work after a painful layoff.
Those factors help to explain why employment levels remain depressed compared with the period before the pandemic, even as job openings remain remarkably high by historical standards.
Still, many economists say there is momentum underlying the uneven economic recovery that will resurface once the current pandemic wave abates. The economy added millions of jobs last year, and the unemployment rate has dropped sharply. A record number of Americans quit their jobs in November, as intense competition, especially in lower-wage sectors, has presented workers with opportunities to demand and seek higher wages and better working conditions.
“We’ve seen these subsequent waves,” Mr. Bunker said. “And then things have reverted to the underlying strength.”
Economic policymakers at the Federal Reserve are aware that many workers are still missing from the labor force, but they have increasingly signaled that they will not wait for them to return to remove help for the economy. With wages rising and inflation at its highest in nearly 40 years, officials are trying to make sure that prices remain under control.
Officials have signaled that they could raise interest rates several times this year in a bid to slow spending and cool off a fast-growing economy, and economists think those moves could start as soon as this spring. For now, Fed policymakers seem content to define “full employment” — their job-market goal — as low unemployment.
“I don’t think it’s a matter of some internal conflict between hiking and full employment,” said Michael Feroli, chief U.S. economist at J.P. Morgan. When it comes to declaring victory on job-market progress, he said, “most of them are already there.”
Federal Reserve officials have signaled that they are poised to raise interest rates this year as they try to put a lid on high inflation, and new data showing that the unemployment rate declined is likely to keep them on track to pull back their support for the economy.
The jobless rate fell to 3.9 percent in December, based on data collected during a period that largely predated the worst of America’s Omicron-driven virus surge. Unemployment peaked at 14.8 percent in April 2020, and had hovered around 3.5 percent for months before the onset of the pandemic. Fed officials expect unemployment to return to prepandemic levels by the end of the year, their economic projections released in December showed.
The rapid return to near-normal jobless rates has caused many central bankers to determine that the United States is nearing what they estimate to be “full employment,” even though millions of former employees have yet to return to the job market.
That’s partly because signs abound that jobs are plentiful, but workers are hard to find: Wages are rising swiftly, job openings are at elevated levels, and the share of people quitting their jobs just touched a record. Employers complain about struggling to hire, and a dearth of workers has caused many businesses to curtail hours or services.
“Several participants viewed labor market conditions as already largely consistent with maximum employment,” according to minutes from the Fed’s December meeting, released earlier this week. Others said the economy was making “rapid progress” toward that goal. Some suggested it could make sense to raise rates before maximum employment is reached, given the heady inflation.
Fed officials are worried that rising wages and limited production could help to keep inflation — now near a 40-year high — elevated. Price gains have been uncomfortably rapid over the past year. The combination of a healing job market and the threat of out-of-control inflation has prompted central bankers to speed up their plans to withdrawing their policy help from the economy.
They could raise rates three times in 2021, based on their estimates. That would make borrowing for cars, houses and business expansions more expensive, slowing spending, hiring and growth.
“It makes sense to get going sooner rather than later,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a call with reporters on Thursday, suggesting that the moves could come very soon. “I think March would be a definite possibility.”
Wall Street was unsteady on Friday, after a new report showed that hiring in December was weakening even before the latest wave of the coronavirus reached its full strength.
U.S. employers added 199,000 jobs in December, the Labor Department said on Friday, far below economists expectations for a gain of 440,000 jobs. It was the job markets weakest showing in 2021, and followed an unexpected slowdown in hiring in November as well.
The reaction on Wall Street was somewhat mixed. Futures on the S&P 500 pointed to a small decline when trading begins, while yields on government bonds continued to climb, as they have done all week. The yield on 10-year Treasury notes rose to 1.76 percent from 1.73 percent.
Investors have become laser focused this week on the Federal Reserve’s next move, as the central bank quickly removes support for the economy to tamp down inflation. Fed members are closely watching the labor market, with some officials saying that work force conditions may already be consistent with maximum employment, minutes from the central bank’s meeting in December showed.
At the same time, however, the data for the latest job report was collected in mid-December, before the Omicron variant was in full swing in the United States, and only captures part of the variant’s impact on the economy. Rising infections wreaked havoc on companies after staff shortages worsened by the end of the year.
Inflation in the eurozone climbed to an annual rate of 5 percent in December, the second-consecutive record, according to the initial estimate of the European Union’s statistics office.
The rate was slightly higher than the previous month’s increase of 4.9 percent. Inflation has jumped around the world as the pandemic disrupted supply chains, labor markets and the availability of goods. In Europe especially, soaring energy prices have contributed significantly to the record-high inflation rates.
But analysts say there are small signs inflation is turning a corner. In December, energy prices rose 26 percent compared with a year earlier, one-and-a-half percentage points smaller than November’s increase.
Still, energy prices are set to remain volatile this winter amid dwindling stockpiles of natural gas and concerns about supply from Russia. Around the New Year, European gas prices fell sharply but then jumped 30 percent on Tuesday. They remain several times higher than normal prices.
The European Central Bank expects energy prices to stabilize throughout the year and supply bottlenecks to ease, allowing inflation to eventually fall back. European policymakers have argued that because most of the jump in inflation will be temporary, they do not need to respond aggressively by raising interest rates or ending all the bank’s bond-buying programs.
But Europeans will still have to withstand a relatively long period of higher prices. Once energy prices are stripped out, December’s inflation rate rose 2.8 percent from a year earlier, as the prices of food and industrial goods increased. The central bank forecasts the overall inflation rate, including energy, to average 3.2 percent this year, notably above its 2 percent target.
According to some analysts, the eurozone may have reached the peak in inflation.
“In the near term, eurozone inflation is set to decline,” Salomon Fiedler, an economist at Berenberg bank wrote in a note to clients. For one, the effects of changes to German sales taxes at the start of the pandemic will no longer impact inflation, reducing the overall rate by about half a percentage point.
There are “tentative signs” that some of the key drivers of the recent increase in inflation are reversing, Claus Vistesen, an economist at Pantheon Macroeconomics, wrote in a note.
“If we are right, markets, and the E.C.B., will breathe a sigh of relief, but we think it will be short-lived,” he wrote. “Energy inflation will come down only slowly, and with food inflation now seemingly on the rise, the headline will remain high overall through most of this year.”
The Supreme Court will hear oral arguments on Friday over efforts to overturn two major Biden administration policies intended to raise coronavirus vaccination rates: its vaccine-or-testing mandate aimed at large employers and a vaccination requirement for some health care workers.
The hearing comes as the country is facing a surge in coronavirus cases and the White House wrestles with how to manage this phase of the pandemic. It could be the “most important day for public health in a century,” said Lawrence Gostin, a professor of global health law at Georgetown.
The argument boils down to whether the federal government has the authority to impose these mandates, a question the Supreme Court has not yet considered in other challenges:
The Labor Department’s Occupational Safety and Health Administration says it has the power via a 1970 law that allows it to issue emergency rules for workplace safety.
Opponents, which include some states, trade groups and companies, say that the mandates should be left to legislation, not executive action.
The outcome is a tough call, labor lawyers say. The court’s conservative majority may be skeptical of broad assertions of executive power, writes The New York Times’s Adam Liptak. The last time the Supreme Court considered a Biden administration policy addressing the pandemic — a moratorium on evictions — the justices shut it down.
A decision in favor of the mandate would mean that, by Monday, large companies must have policies in place that require employees to be vaccinated or tested weekly. They must be following those policies by Feb. 9.
If the court rules against the government, then that would effectively end the federal mandate, though the administration could pursue the regular rule-making process. This also wouldn’t preclude states from introducing their own vaccine requirements.
The special hearing was called late last month, and the court said it would move quickly (as it did in a recent case over abortion rights in Texas). A ruling could come fast.
In the meantime,many companies have been gearing up for a mandate, if they haven’t already introduced such rules.
Starbucks recently said that U.S. workers would have to be fully vaccinated by Feb. 9 or submit to weekly testing, in compliance with the mandate.
JPMorgan Chase warned employees that “government-issued vaccine mandates may likely make it difficult or impossible for us to continue to employ unvaccinated employees,” and encouraged workers to get vaccinated.
Macy’s requested the vaccination status of its employees, often a prelude to a mandate.
Airlines are at odds with the European Union over rules that require them to use their takeoff and landing slots at airports, even when they don’t have enough passengers to justify flights. Airlines are being forced to fly thousands of nearly empty planes — sometimes called “ghost flights” — as travel plummets because of Omicron infections.
In recent weeks, several European carriers, including Lufthansa and Brussels Airlines, have said they need to cancel thousands of fights because they are not booked enough to be profitable. But they are being squeezed by E.U. rules that require them to use their valuable airport slots or risk losing them, potentially to rival carriers.
The rules, which normally require airlines to use at least 80 percent of their allocated slots at airports, were waived in early 2020 as the coronavirus hit the continent. But since then, the bloc has begun reinstating them, and last month the European Commission set the threshold to 50 percent for the winter travel season.
“Now the threshold for maintaining slots is raised again and this means that if we cancel these 3,000 flights, we would lose our slots at multiple airports,” Maaike Andries, a spokeswoman for Brussels Airlines, said Thursday. “This is something that any airline must avoid of course.”
Pre-assigned takeoff and landing slots are common at Europe’s crowded airports, and are used to allocate space and prevent chaos among different airlines.
In the United States, only three airports maintain slots — Kennedy and La Guardia in New York, and Ronald Reagan in Washington — and the Federal Aviation Administration waived them early on in the pandemic and most recently extended them through March of this year.
In announcing its decision to set the restriction at 50 percent capacity on Dec. 15, Adina Valean, the E.U. commissioner for transport, acknowledged concerns about the Omicron variant, but said the move was aimed at helping airlines return to capacity by the summer.
But as more people canceled trips over the holidays amid the surge in the virus, airlines were left with little choice but to fly near-empty planes or risk losing valuable airport slots.
Carsten Spohr, chief executive of the Lufthansa Group, said his company had to cancel 33,000 flights, roughly 10 percent of those scheduled for the winter season. Other flights took off, but were nowhere near fully booked. Besides Lufthansa, the company owns Eurowings and Austrian, Brussels and Swiss airlines.
“We have to carry out 18,000 additional, unnecessary flights just to secure our starting and landing rights,” Mr. Spohr told the Frankfurter Allgemeine Sonntagszeitung weekly newspaper two weeks ago.
“This is damaging for the climate,” he said, “and is exactly the opposite of what the European Commission hopes to achieve” in its effort to cut greenhouse gas emissions.
Georges Gilkinet, the Belgian minister for transportation, said on Wednesday that he sent a letter to the European Commission asking for a further loosening of the regulation that he called “economic, ecologic and socially nonsense.”
“I asked the Commission to review these unsuitable rules in times of Covid,” Mr. Gilkinet said over Twitter.
This week, the commission said it was standing by its decision to leave slot usage at 50 percent through the winter season, in the interest of balancing the needs of airport operators, passengers and airlines.
That position was supported by a group representing airports.
“The pandemic has hit us all hard. Balancing commercial viability alongside the need to retain essential connectivity and protect against anti-competitive consequences is a delicate task,” said Olivier Jankovec, director of Airports Council International Europe. “We believe that the European Commission has got this right.”
Richard H. Clarida, the departing vice chair of the Federal Reserve, bought and sold shares of a stock investment fund in early 2020 just as the Fed was preparing to swoop in and rescue markets amid the unfolding pandemic.
Mr. Clarida failed to initially disclose all of the financial transactions, Jeanna Smialek reports for The New York Times, citing an amended financial disclosure that shows the trading was more extensive than earlier known.
Mr. Clarida previously came under fire for buying shares on Feb. 27 in an investment fund that holds stocks — one day before the Fed chair, Jerome H. Powell, announced that the central bank stood ready to help the economy as the pandemic set in. The transaction drew an outcry from lawmakers and watchdog groups because it put Mr. Clarida in a position to benefit as the Fed restored market confidence.
The recently amended financial disclosure showed that the vice chair sold that same stock fundon Feb. 24, at a moment when financial markets were plunging amid fears of the virus.
The Fedinitially described the Feb. 27 transaction as a previously planned move by Mr. Clarida away from bonds and into stocks, the type of “rebalancing” investors often do when they want to take on more risk and earn higher returns over time. But the rapid move out of stocks and then back in makes it look less like a planned, long-term financial maneuver and more like a response to market conditions. READ MORE
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