December jobs report expected to be strong, with no impact yet from omicron

Hiring is expected to have been strong and broad-based in December, even as some companies were asking employees to work from home again temporarily due to the rapid spread of the Covid omicron variant.

Economists forecast 422,000 jobs were added in December, double the 210,000 in November, according to Dow Jones. The unemployment rate is expected to slip by a tenth of a percentage point to 4.1%.

“It should be a better month than we saw in November, and the unemployment rate should move a bit lower. The main message coming out of this is the economy should be one step loser to full employment, and one step closer to Fed tightening,” said Barclays chief U.S. economist Michael Gapen.

The Federal Reserve has forecast three quarter point rate hikes for this year, and Gapen said a strong jobs number would reinforce the central bank is on track to raise interest rates as soon as March.

“The employment picture is more than good enough,” said Diane Swonk, chief economist at Grant Thornton. “We’re still down 3.9 million jobs, yet the Fed has decided we’re at full employment. We’re likely to see an unemployment rate of 4.1%, which is below what the Fed considers full employment.”

Average hourly wages are expected to be up 0.4% in December, or 4.2% year-over-year, compared to a 4.8% year-over-year gain in November, according to Dow Jones.

The consumer price index in November was up 6.8%, the fastest pace since 1982. If prices keep rising and wages do as well, the concern is there could be a self-feeding wage and price spiral.

“The problem with the Fed is they’re worried about the inflation we’re seeing becoming entrenched,” Swonk said. “Already you have inflation outpacing wage gains. Even as inflation cools, will it be enough? Or are we going to see workers saying they’re not even being compensated for inflation.”

Rising wages are being driven in part by the same issues that are driving the increase in the cost of goods. There is strong demand, but not enough supply of either goods or people.

Swonk said hiring should be up across the board in December, led by strong gains in leisure and hospitality.

Tom Gimbel, CEO of Chicago-based LaSalle Network, said his recruitment firm is busier than ever.

“Anybody can get a job who wants one. We said that in the dotcom times, and it was nothing like this. And I don’t think it’s [only] for the next 18 months. Companies want to hire people,” Gimbel said.

In the middle of December, companies extended stay-at-home work. Employees were also told to work at home for a few weeks, as in the case of Goldman Sachs. Apple delayed the return of its corporate staff to offices indefinitely.

Swonk said the pandemic could definitely be a drag on job growth for January. Besides large companies sending workers home, small businesses may have a hard time even opening because of sick staff. Those shutdowns all have a ripple effect on the economy and job market.

Swonk said New York has been the leading edge of the omicron impact, and most companies announced employees should work at home after the middle of the month. The government survey for the jobs report was done for the week including Dec. 12.

But for January, the impact of omicron could mean a flattish or even negative payrolls number, she said.

“The bottom line is if you are closing down a bunch of small businesses temporarily, a lot of those will show up as no payrolls in the week of the survey,” she said. “This is delta and omicron colliding with the flu season, and you’re going to lose paychecks.”

According to the Bureau of Labor Statistics, fewer workers worked from home in November. The number of people teleworking fell by 0.3 percentage point to 11.3%.

Gimbel said he does not expect some workers to return to the workforce until after next summer, and that many of them are parents of small and school age children. The quit rate also remains very high.

“People who can afford to quit are quitting. We’ve never seen this type of labor shortage before,” said Gimbel. “This type of labor shortage is due to one thing and one thing only, and that’s the pandemic.”