(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, January 7 at 8:30 AM Eastern Time.)
The labor market continues to be remarkably healthy. The sharp drop in unemployment in the November report brought the unemployment rate to a level only seen for brief periods in the last 50 years. The weekly data on unemployment insurance claims indicate that employers are reluctant to lay off workers.
The surge in infections associated with the omicron variant is not likely to have much effect on the December report. The reference week occurred before cases began to spiral higher, so any impact from omicron will first show up in the January report.
Somewhat Stronger Job Growth, Look for Upward Revisions
The 210,000 November job growth number was far below most projections. We are likely to see growth in the 300,000 to 400,000 range in December. It is important to realize that recent numbers have been subject to large upward revisions. The revisions tend to follow patterns, so that if prior revisions have been upward, current ones are likely to go in the same direction (and vice versa).
The September growth number was originally reported as 194,000. It was revised up twice and now stands at 379,000. We may see a large upward revision to the November number and may also see whatever number comes out on Friday revised up as well.
Sectors Most Affected by Pandemic Likely to Show Strong Growth
The sectors that have been hardest hit by the pandemic are likely to show good growth in December. Air transportation is still down 46,500 jobs (9.0 percent) from its pre-pandemic level. Arts and entertainment employment is down 275,100 (11.0 percent), and the movie industry is down 96,700 jobs (21.9 percent). These sectors should all show good growth in December.
Manufacturing and Construction Continue Recovery
Both sectors have added jobs at a rapid pace in recent months, with growth for both industries average 36,000 jobs over the last three months. Construction employment is just 1.5 percent below its pre-pandemic level while manufacturing employment is down 2.0 percent. At the recent pace of growth, construction will be back to its pre-pandemic level in less than four months, manufacturing in seven months.
Low-Wage Industries Continue to Have Problems Attracting Workers
In many low-paying sectors, employment is clearly now limited by the supply of willing workers. The category of nursing and residential facilities has been losing jobs for 14 months. Employment now stands at 423,700, 12.5 percent below the pre-pandemic level. Childcare employment is down 108,100 (10.3 percent), hotel jobs are down 301,200 (14.4 percent), and restaurant employment is at 756,600, 6.1 percent below its pre-pandemic levels. In all of these sectors, employers will have to make jobs more attractive to bring in additional workers.
Longer Hours Are an Alternative to More Workers
In cases where employers can’t hire more workers, they may seek to fill their demand for labor by increasing the length of the workweek. The index of aggregate hours rose by 0.5 percent in November, the equivalent of more than 600,000 private sector jobs with no change in the length of the average workweek. The monthly data on workweeks are somewhat erratic, but it is important to see if weaker job growth is accompanied by longer hours.
State and Local Government are Having Trouble Hiring
Employment in the state and local government sectors are well below pre-pandemic levels, down 254,000 jobs (5.1 percent) and 678,000 jobs (4.6 percent), respectively. In a labor market where private employers are raising wages and offering hiring bonuses, government employers have difficulty competing. State government employment has fallen in the last three months, while local government employment has fallen for four consecutive months. This shrinkage may start to be reversed in December.
Slowing Wage Growth
While still likely higher than the pre-pandemic pace, we may see some slowing of wage growth from the rates seen in the summer and early fall. It is standard to take the year-over-year pace of growth, but this is likely to conceal the most recent trends in the labor market.
The average hourly pay of production workers is up 5.9 percent year-over-year as of November. It rose at a 6.6 percent annual rate comparing last three months (September to November) with the prior three months (June to August). For restaurant workers, the year-over-year gains have been even larger, but there has been a substantial slowing in recent months. The average hourly wage for production workers in the industry was up 13.4 percent year-over-year. However, the annual rate of growth slowed to 5.7 percent, comparing the last three months with the prior three months.
We are likely to see more evidence of slowing wage growth in the sectors where growth had been fastest. This is consistent with the view that the burst of inflation we saw in 2021 is transitory. If wage growth stays high or accelerates further, it could mean serious problems with inflation going forward. With gas prices headed downward, and car prices likely to follow, more modest nominal wage gains will translate into real wage growth.
Unemployment Rate May Edge Higher
We may see some reversal of the good news reported in November. The data in the household survey are always somewhat erratic. The 0.4 percentage point drop in the unemployment rate reported for November was extraordinary. It is likely that at least some of this drop may have been due to measurement error, which could mean that the unemployment rate could rise slightly in December. This would not necessarily mean a weakening in the labor market, just normal errors in the data.
The same story applies to the employment picture for disadvantaged groups, which improved sharply in November.
The unemployment rate for Blacks fell by 1.2 percentage points to 6.7 percent, a level not reached following Great Recession until March of 2018, and never prior to that time. For Hispanics, the decline was 0.7 percentage points, to 5.2 percent.
The unemployment rate for workers without a high school degree fell by 1.7 percentage points to 5.7 percent. The unemployment rate for people with a disability fell by 1.4 percentage points to 7.7 percent, while the employment-to-population ratio (EPOP) rose by 1.1 percentage points to 21.5 percent. The latter figure is almost 2.0 percentage points above pre-pandemic peaks.
Self-Employment Remains Well Above Pre-Pandemic Levels
There was a drop in self-employment reported in November, but it was still more than 500,000 above the 2019 year-round average. This is potentially a big positive in the current labor market that has not gotten much attention.
Labor Market Strong, but the Pandemic is Not Behind Us
There is much good news in the labor market, which is likely to continue with the December jobs report. But, we are still not over the pandemic, nor its influence on the labor market.
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