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.”