December Jobs - Deja Vu All Over Again

Payroll additions disappoint again; Lower unemployment provides underpinning for tighter Fed policy. U.S. job growth slowed to its lowest level in 2021, while participation was unchanged and unemployment marked a fresh post-pandemic best. Today’s report is an indication that in spite of robust demand for workers, the issues that have limited hiring (retirements, childcare issues, virus fears etc) persisted through year end. Minutes from the Fed’s December meeting (released on Wednesday) noted policymakers views that it may become warranted to increase interest rates “sooner or at a faster pace than participants had earlier anticipated.” At 3.9%, unemployment is now officially below the Fed’s “full employment” threshold of 4.0%, likely removing any remaining barriers to faster tightening in 2022 amid higher levels of inflation.

199K payrolls added in December – Below forecast again, lightest month in 2021. The U.S. labor market added 199K jobs in December, failing to bounce back after adding just 249K in November (revised from +210K originally reported). Job growth averaged 537K/month in 2021. Forecasts ranged from +150K to +850K with a median of +450K so today’s outcome was at the low end of the expected range. Job gains continued to trend higher in leisure & hospitality (+53K), professional & business services (+43K), manufacturing (+26K), construction (+22K) and transportation (+19K) while other industries showed little or no change. Overall employment has increased by 18.8M since April 2020, but remains 3.6M (2.3%) below pre-pandemic levels.

3.9% unemployment rate better than expected. The U.S. unemployment rate improved 0.3% to 3.9% in December. Forecasts ranged from 4.0% to 4.4% with a median of 4.1% so today’s outcome beat all expectations. The labor force participation rate was unchanged at 61.9% – 1.5% below pre-pandemic levels, but 0.4% higher for the year. Hourly wages closed out 2021 4.7% higher than a year ago.