• Another Disappointing Jobs Report Masks the Strong Recovery

    Another Disappointing Jobs Report Masks the Strong Recovery

    Continuing a persistent theme for 2021, December’s employment report came short of expectations as firms added just 199,000 positions in the month, according to the Bureau of Labor Statistics. But as has been common this year, figures for the prior two months were revised higher and it’s likely that December job numbers will also see upward revisions. Overall, it turns out that 2021 was a solid year for job growth, with nonfarm employment growing by 4.5% over the year or 6.4 million jobs. After the devastating and historic job losses in March and April 2020, the nation is now just 3.6 million jobs shy of pre-pandemic levels.
    Yet the labor market has changed drastically during the pandemic. It is estimated that about 3 million workers retired early during this time and are unlikely to be drawn back into the labor force. Others remain temporarily out of work for reasons such as caring for family members or being fearful of becoming ill during the pandemic. Still more, having lost jobs or reevaluating work-life balance preferences, stepped away from wage-based work and became entrepreneurs. The household survey of December’s jobs report showed more than 650,000 people finding work of some type, more than three times the number of positions added by firms, indicating that people are finding nonwage jobs such as self-employment.

    While the unemployment rate ended the year at 3.9%, a new pandemic low and what might be considered close to full employment, that rate captures only the labor force status of those who are working or actively seeking employment. Yet more than 1 million people report that COVID is preventing them from looking for work. Hence the labor force participation rate remains low, now at 61.9% compared to 63.4% in February 2020, and is much lower than in any month since the late 1970s. But the participation rate of those of prime working age is 81.9%, still lower than the pre-pandemic peak of 83% but roughly in line with last decade’s average.

    The nation’s industrial composition has also changed due to the pandemic and the contraction of the labor force. High-wage sectors, including professional and technical services as well as finance and insurance have fared better in terms of employment growth as those functions were more able to adapt to remote work. These sectors are also more likely to provide a combination of above-average wages, lucrative benefits packages and occupational growth opportunities.

    In contrast, in industries more negatively affected by the pandemic, such as accommodation and food services, jobs have not yet returned and are nearly 1 million positions short of February 2020 levels — even after adding the most jobs of all sectors in December at 53,000 positions. Local government workers — especially in education — and health care services are also far from full recovery. Moreover, headwinds for these sectors continue as the infections caused by the omicron variant surge, occasioning more quarantines and other restrictions.

    With the near-record number of job openings and limited hiring, workers are moving into new jobs offering higher wages. More than 4.5 million people quit their jobs in November, a record, according to the latest data available. As a result, wage growth has been unlike anything we’ve seen in decades. Average weekly earnings for private-sector workers grew by 4.7% in December over the previous year. For production and nonsupervisory workers — i.e., those normally not beneficiaries of bonuses and other benefits — that number was 5.8%, faster than any year prior to the pandemic since 1981.

    Wages have grown across the board, but nowhere faster than in low-wage sectors, especially customer-facing industries with the highest risk of COVID exposure during the pandemic. Average weekly earnings in the leisure and hospitality sector grew by 19.1% in December over the year. Retail workers also saw a sizable uptick in weekly earnings of 8.9% over the same period.

    With labor costs rising and workers becoming scarcer, it will come as no surprise to see firms developing labor-saving strategies, such as reducing hours of operation, consolidating operations and investing in automation and other technology solutions.

    What We’re Watching …

    The final monthly report of retail sales in 2021 is set to arrive on Friday. Sales in December are projected to have slowed from October and November as holiday shoppers loaded up on gifts earlier than usual in fear that clogged supply chains could leave shelves empty. November retail sales came in far below expectations for this same reason, and December should continue the slowdown. Also, the recent spike in inflation is probably giving consumers pause. After all, although no longer thought to be transitory, inflation is largely expected to recede in coming months, giving consumers a reason to wait to make large purchases until prices stabilize.

    CoStar Economy is produced weekly by Christine Cooper, managing director and chief U.S. economist, and Rafael De Anda, associate director of CoStar Market Analytics in Los Angeles.