US job growth slowed sharply in December, according to data from the Bureau of Labor Statistics (BLS) last week, suggesting that the labor market recovery may run out of steam.
But looking beyond the headline numbers showing just 199,000 jobs being added, a different picture is taking shape. Economists say the labor market is much stronger than it first appears, and is in fact in one of the most solid positions in history.
“The labor market is active. It is arguably hotter now than ever,” said Rick Rieder, chief global fixed income investment officer at BlackRock.
Here’s the evidence that economists, investors, and CEOs are seeing:
Low unemployment rate
Despite the decline in the pace of employers adding jobs to the world’s largest economy, the unemployment rate has fallen dramatically in recent months. At 3.9 per cent, it is now at its lowest level since before the pandemic.
To calculate the unemployment rate, the Bureau of Labor Statistics surveyed about 60,000 families about their employment activity. In December, it emerged that 651,000 jobs had been created, far more than the headline figure of 199,000.
The latter figure is from a different source, the Employer-focused Enterprise Survey, which surveys some 144,000 employers and is affected by data distortions related to the pandemic.
A similar dynamic was applied last month, with the household survey noting a gain in employment of 1.1 million. That helped push the unemployment rate down to 4.2 per cent and provided a better job market outlook than the 210,000 jobs reported in November’s preliminary figures.
The “Big Resignation” and job creation
As the number of Americans leaving their jobs has hit record numbers in recent months, the current labor shortage has grown even more severe.
Figures from the Bureau of Labor Statistics last week showed that more than 4.5 million workers quit in November, surpassing the previous record of 4.4 million set in September – and well above the 4.2 million in October.
This contributed to a near-record number of job openings, with 10.6 million vacancies at the end of November, just below the 11.1 million reported in October.
Economists have dubbed this trend “the Great Resignation,” in which workers benefit from a serious pursuit of employment by employers who have had to raise wages to stimulate demand.
Tyson Foods Inc. warned in its latest earnings announcement that competition for talent is “affecting our operating efficiencies,” and FedEx said the labor shortage cost it nearly $470 million last quarter.
Mark George, chief financial officer of Norfolk Southern, told analysts in December that a “vigorous” truck market, a strong construction market and Amazon warehouses were “popping up all over the place” and now that “people have plenty of choices”.
At the same time, concerns about COVID and childcare issues deterred workers from returning more quickly to the workforce, resulting in a much lower recovery in the proportion of people working or looking for a job.
The labor force participation rate improved further in December, reaching 61.9 per cent, but still less than its pre-pandemic level by more than a percentage point.
The participation rate for those aged 24 to 54 is higher, at 81.9 percent, but it is also lower than the February 2020 rate.
Wage growth soaring
In an attempt to entice workers, employers have raised wages so much that economists and Federal Reserve officials say they are watching the rise closely for any signs of persistently higher inflation.
Fast food restaurants, retailers, and logistics companies are among those who improve the terms they offer to beginners. Finally, retailer Lewis warned of rising wage costs as a result of labor shortages. Average hourly earnings rose 0.6 per cent from the previous month, which translates to a 4.7 per cent annual gain.
In its latest survey of chief executives, the Business Roundtable found that rising wage costs stemming from a labor shortage have risen to the top of CEOs’ list of concerns, far outpacing issues such as supply chain disruptions or the rising cost of materials.
“It’s a tight job market that requires a lot of ingenuity, creativity, and effort to attract and retain employees as best we can,” Connolly, CEO of Conagra, told analysts last week. “I feel good about where we are now, but there’s no denying it’s a daily routine.” .
Economists have also realized that the initial estimate of key job growth can be significantly adjusted in future reports given the difficulty of the economic metric during a pandemic.
The December payroll figure will be updated in February and again in March. This number is likely to be underreported. During 2021, upward revisions added more than a million jobs – a record number in a single year.
Measuring salaries during a pandemic is particularly challenging for two main reasons. First, companies were slower to respond to the enterprise survey from which salary estimates were derived, meaning that the initial estimate is based on incomplete data.
By the December deadline, 71 percent of firms had responded, compared to 81.5 percent in December 2019. Economists say firms with greater activity, such as those hiring more quickly, are likely to be Among the slowest companies to respond, contributing to a lower initial estimate of payroll.
Second, the pandemic has disrupted seasonal patterns, which in turn has complicated the statistical models that the Bureau of Labor Statistics uses to remove seasonal influences from raw data, such as vacation employment.
In December, preliminary figures showed payroll growth of 72,000, which the Bureau of Labor Statistics adjusted for an increase of 127,000. That’s lower than the usual adjustment for December, according to Gregory Dako, chief US economist at Oxford Economics. The seasonal adjustment model is also revised as data is received, leading to further revisions in the future.