December Jobs Come In Well Under Expectations, Even As Unemployment Drops To 3.9%

The December jobs numbers just out are a big disappointment to many. Total nonfarm employment rose by 199,000—less than half of the projected 400,000 to 420,000, as various news agencies had reported. That’s before the effects of the Omicron variant were expected to hit hard in the first quarter of 2022, as the December survey took place in the middle of the month.

What are the reasons? It’s impossible to know exactly, but here are some possibilities.

More choices for workers, fewer for employers

One is the ongoing “great resignation,” which is tied tightly into the high number of available jobs per unemployed person.

For years, jobs have been growing faster than the number of people available to do them. The number has jumped from about 1.3 jobs per person at the end of August 2021 to almost 1.6 jobs through November 2021. The more jobs per person, the more choices people have in work opportunities overall, while the fewer people available to fill jobs.

The growth has been particularly fast in jobs with more specialized and complex skill requirements in technical, scientific, and engineering positions, which means even tighter availability of people to hire. When labor is short, filling jobs is more difficult and, so, the actual jobs numbers could be restrained.

A mismatch of sampling

Going back to the idea of the great recession is that people are leaving jobs at a dizzying rate. In the Job Openings and Labor Turnover Summary (JOLTS) report for November—from the people who bring the monthly jobs numbers (Bureau of Labor Statistics, or BLS)—there were 6.3 million separations, of which 4.5 million were people quitting. The other 1.8 million were layoffs, discharges, and other separations.

The 4.5 million was a series high—huge number of people leaving jobs, many of whom might have taken others or have been looking. Maybe companies had to focus on backfilling jobs, leaving them less time to recruit during the sampling week of December.

Some reports brought up the Omicron variant of Covid-19 as the main factor. It’s tough to tell. There was news of Omicron early in December, but had enough concern built up to keep people from looking for jobs? Perhaps but hard to say. As Anu Gaggar, global investment strategist for Commonwealth Financial Network, said in a note today, “Nonfarm payrolls number was a disappointment, increasing by less than half of economist expectations, and the impact of omicron hadn’t even fully flowed through into this print.”

Approaching normal

Another possibility, though, is that the country might be approaching recent normalcy. The next graph shows the employed people as a percentage of the civilian labor force:

The 96.1% level in December 2021 is in the same ballpark as 95.9% in December 2017, 96.1% in December 2018, and 96.5% in December 2019. A little more room given that last figure, but not that far off, versus 93.3% in December 2020.

Put together a recovering economy, longer-term trend of the number of jobs per person growing, the speed at which companies can and do add new jobs, a declining birth rate trend, hostility toward allow immigration, and people looking to move out of low-wage and poor-condition employment (creating a job opening when finding a new employer), and there comes a point where expectations for big job growth all the time is unrealistic.

The combination of factors would seem to suggest that the U.S. will see flattening job creation. Really, with an unemployment rate below 4%—which used to be in the ballpark of what economists would call full employment—how could one expect even more?

Though all these numbers miss people marginally attached or who are discouraged tend to be hidden in these discussions.

“However, if we include marginally attached and discouraged workers (U-6 measure), 7.3% of the US population is currently un/under employed,” Gaggar says. “Overall, this print had mixed messaging – the payrolls growth number may look disappointing, but the underlying story is lack of availability of labor, which is manifesting itself in faster wage growth. The combination of the decline in unemployment rate to below Fed’s long-term equilibrium level and acceleration in wage growth brings the Fed’s March meeting in play for the first-rate hike of this cycle.”