The number of people hired by US employers slowed in December after a year of record job gains, according to a report by the US Department of Labour.
199,000 people were hired in December, significantly fewer than the 422,000 predicted by economists and the lowest number of new jobs added in any month last year.
The job gains in December were felt across most industries but predominantly in leisure and hospitality.
Data revealed by the Bureau of Labour Statistics showed that the US jobless rate fell from 4.2% to 3.9% in December. The jobless rate is a measure of the number of people who actively participate in the labour force but who are without a job. Given the muted growth in the number of people hired, this suggests that a large proportion of workers have left the labour force.
A record 4.5 million Americans quit their jobs in November 2021, a phenomenon dubbed the ‘Great Resignation’. A decline in labour force participation is traditionally synonymous with confidence and optimism in the labour market. However, the current economic climate suggests that there may be other underlying factors contributing to this event.
According to the Guardian, some of the main reasons for a decline in labour force participation include a lack of adequate childcare and healthcare concerns, likely to be exacerbated by the surge in Omicron cases. Additionally, lockdowns and various restrictions have provided people with an opportunity to reconsider their options for work and many (particularly those in the hospitality and retail sectors) have opted to leave their professions in search of jobs that provide greater stability or in favour of self-employment.
Employment remains 3.6 million jobs below its pre-pandemic peak in February 2020 and it is evident that worker shortages are acting as a restraint on employment growth.
This decline in the supply of labour has contributed to a rise in wages across the economy. As labour supply falls, wages are bid up as the number of workers available becomes scarcer - a higher ‘price’ of labour (the wage rate) reflects a higher value placed on a smaller number of workers.
According to a report by Forbes, wages in 2021 grew at the fastest rate in 35 years. A higher wage rate contributes to higher costs of production for firms and it is likely that this will have contributed to rampant inflation in the US, currently running at 6.8% (as measured by the Consumer Prices Index).
Low levels of unemployment have led the Fed to believe that the economy is nearing full employment - the maximum rate of employment possible without causing a surge in inflation.
Rising wages and limited production have caused fears of sustained elevated inflation and central bank officials are under pressure to reverse their expansionary monetary policy measures. This is likely, to begin with, the hiking of interest rates from their current level of 0.25%.
Written by Deandra Peiris