December Payrolls Huge Miss Again, Just 199K Jobs Added, As Unemployment Rate Tumbles

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by Tyler Durden
Friday, Jan 07, 2022 - 01:34 PM

With everyone bulled up on the December jobs print which was expected to more than double the disappointing November print of 210K to 447K with a whisper of more than 500K, moments ago the BLS reported that in December the US job market deteriorated again, as only 199K jobs were added, a huge miss to expectations, and the lowest number since December 2020.

This was the second consecutive month of big misses in the Establishment Survey relative to expectations:

As expected, the November payrolls data was revised higher, but not nearly as much as some had expected, rising just 39K from 210K to 249K. At the same time, nonfarm payroll employment for October was revised up by 102,000, from +546,000 to +648,000, and the change for November was revised up by 39,000, from +210,000 to +249,000. With these revisions, employment in October and November combined is 141,000 higher than previously reported. Still this does not explain why the current month continues to print disappointly lower than expected.

However, in a carbon copy of last month's schism between the Household and the Establishment survey, in December the former once again showed solid gains, with the number of employed workers rising by a whopping 651K to 155.975MM, and with the number of Unemployed sliding by almost half a million from 6.802MM to 6.319MM, the unemployment number once again slumped sharply, dropping to just 3.9% from 4.2%, and below the consensus estimate of 4.1%, even as Black unemployment gained notably.

Among the major worker groups, the unemployment rates for adult men (3.6 percent), adult women (3.6 percent), and Whites (3.2 percent) declined in December. The jobless rates for teenagers (10.9 percent), Blacks (7.1 percent), Asians (3.8 percent), and Hispanics (4.9 percent) showed little or no change over the month.

As Bloomberg chief economist Carl Riccadonna writes, the biggest news from this report, without doubt, is the fact that the labor market has now arrived at (and surpassed) the Federal Reserve’s estimate of full employment (which the Fed pegs at 4.0%).

“As we are already beyond that level (3.9% reported), this will compel any lingering fence sitters on the FOMC to the view that the threshold for interest rate liftoff has been met -- thereby titling policy makers’ inclination toward March vs. June liftoff.”

Bottom line: just like one month ago, we got a very weak Establishment survey (which traditionally has been far more reliable) and a strong Household survey, i.e., the plunge in the unemployment rate, which we expect Biden will be touting when he addresses the jobs number at 10:45am ET.

The labor force participation rate was unchanged at 61.9 percent in December but remains 1.5 percentage points lower than in February 2020. The employment-population ratio increased by 0.2 percentage point to 59.5 percent in December but is 1.7 percentage points below its February 2020 level. Over the year, these measures have increased by 0.4 percentage point and 2.1 percentage points, respectively

Looking at wage growth, average hourly earnings rose 4.7% (up 0.6% on the month, above the exp. 0.4%), which while down from the upward revised 5.1% Y/Y, was a whopping 0.5% above the 4.2% expected. And while the headline print was weak, the wage growth is clearly good news for workers, and another sign of the tightening labor market:

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.7 hours in December. In manufacturing, the average workweek edged down by 0.1 hour to 40.3 hours, and overtime edged down by 0.1 hour to 3.2 hours. The average workweek for
production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 34.2 hours

Among the unemployed, the number of permanent job losers, at 1.7 million in December, declined by 202,000 over the month and is down by 1.8 million over the year. The number of persons on temporary layoff was little changed at 812,000 in December but is down by 2.3 million over the year. The number of permanent job losers in December is 408,000 higher than in February 2020, while the number on temporary layoff has essentially returned to its February 2020 level.

Some more details from the report: the number of persons employed part time for economic reasons, at 3.9 million in December, decreased by 337,000 over the month. The over-the-year decline of 2.2 million brings this measure to 461,000 below its February 2020 level. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

The number of persons not in the labor force who currently want a job was little changed at 5.7 million in December. This measure decreased by 1.6 million over the year but is 717,000 higher than in February 2020. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.

The number of workers unable to work due to bad weather was 74K, which is below the historical average for Dec. of 137k.

Among those not in the labor force who wanted a job, the number of persons marginally attached to the labor force was essentially unchanged at 1.6 million in December. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months but had not looked for work in the 4 weeks preceding the survey. The number of discouraged workers, a subset of the marginally attached who believed that no jobs were available for them, was also essentially unchanged over the month, at 463,000.

Curiously, in December, 3.1 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic--that is, they did not work at all or worked fewer hours at some point in the 4 weeks preceding the survey due to the pandemic. This measure was down from the level of 3.6 million in November. Among those who reported in December that they were unable to work because of pandemic-related closures or lost business, 15.9 percent received at least some pay from their employer for the hours not worked, little changed from the prior month.

Breaking down job gains by job category:

  • Employment in leisure and hospitality continued to trend up in December (+53,000). Leisure and hospitality has added 2.6 million jobs in 2021, but employment in the industry is down by 1.2 million, or 7.2 percent, since February 2020. Employment in food services and drinking places rose by 43,000 in December but is down by 653,000 since February 2020.
  • Employment in professional and business services continued its upward trend in December (+43,000). Over the month, job gains occurred in computer systems design and related services (+10,000), in architectural and engineering services (+9,000), and in scientific
  • research and development services (+6,000). Employment in professional and business services overall is slightly below (-35,000) its level in February 2020.
  • Manufacturing added 26,000 jobs in December, primarily in durable goods industries. A job gain in machinery (+8,000) reflected the return of workers from a strike. Manufacturing employment is down by 219,000 since February 2020.
  • Construction employment rose by 22,000 in December, following monthly gains averaging 38,000 over the prior 3 months. In December, job gains occurred in nonresidential specialty trade contractors (+13,000) and in heavy and civil engineering construction (+10,000). Construction employment is 88,000 below its February 2020 level.
  • Employment in transportation and warehousing increased by 19,000 in December. Job gains occurred in support activities for transportation (+7,000), in air transportation (+6,000), and in warehousing and storage (+5,000). Employment in couriers and messengers was essentially unchanged. Since February 2020, employment in transportation and warehousing is up by 218,000, reflecting job growth in couriers and messengers (+202,000) and in warehousing and storage (+181,000).
  • Employment in wholesale trade increased by 14,000 in December but is 129,000 lower than in February 2020.
  • Mining employment rose by 7,000 in December. Employment in the industry is down by 81,000 from a peak in January 2019.

So what's going on? Well, blame Covid of course (which no economist could factor into their forecasts apparently): addressing the second consecutive big miss, Bloomberg Intelligence’s chief economist, Carl Riccadonna, said that in thinking about the near-term labor trend, it’s important to consider that through the December employment survey period, the Covid case count was up 50% relative to the relevant November period. In early January, it is already up 440% relative to December, so the Covid drag will be an order of magnitude larger in the January data and could easily push net payrolls into negative territory for the next few months.

CIBC economist Katherine Judge was also quick to latch on the Omicron excuse: “The leisure and hospitality sector was the single largest contributor to the job gains (+53K). However, that won’t last in the months ahead given the spread of omicron. Indeed, we expect continued softness in employment, and particularly hours worked, over the next couple of months.”

In terms of what this report means for markets, SocGen's head of U.S. rates strategy said that the Federal Reserve will probably overlook a miss in headline employment figures to focus on the declining jobless rate and “eye-popping” wage increases: “This is an inflation story and the curve is responding by bear steepening." This view was echoed by Bloomberg editor Chris Anstey who said that "all in all, there’s nothing here to dissuade the Fed from considering a March interest-rate hike" because of course the Fed has to focus on anything that doesn't show the economy is slowing as it is about to hike.

And sure enough, the March "lift off" chorus is singing :“This is a green light for March. The U3 unemployment rate plunged 0.3ppt to 3.9%, 0.4ppt below the Fed’s Q4 2021 estimate and only 0.4ppt above the Fed’s estimate for year end 2022. Average hourly earnings are coming in firm as the labor force participation rate remains flat”, said Neil Dutta of Renaissance Macro.

The final takeaway from today's report comes from Michael Pierce, an economist at Capital Economics, who effectively said ignore the negative and just focus on the positive: “The key takeaway for the Fed is that, with few signs of a recovery in labor supply, the continued decline in the unemployment rate and surge in wage growth looks set to be sustained over 2022."