U.S. economy added 199k jobs in December

The U.S. economy added 199k jobs in December, missing market expectations. KPMG Chief Economist, Constance Hunter breaks down what today’s report means for 2022 and beyond.

Constance L  Hunter

Constance L Hunter

Former Principal and Chief Economist, KPMG LLP

Video transcript

The U.S. economy added 199k jobs in December, missing market expectations. However, when looking at all of 2021, there has been significant progress in the labor market. KPMG Chief Economist, Constance Hunter breaks down what today’s report means for 2022 and beyond.  

The variant factor:  The tension between unemployment and worker shortages

The U.S. economy added 199,000 jobs in December, rounding out 2021 in which we saw a total of 6.4 million jobs added. While there are still 3.6 million fewer jobs than before the official start of the pandemic in February 2020, employment growth has been strong enough to lower the unemployment rate from 6.7% to 3.9%. 

Historically, economists would consider a 3.9% unemployment rate to be near full employment. In other words, this should be a time when most people who want a job can find one, albeit with some switching and restructuring. Digging deeper into the data, however, we can see that the road to recovery – and its impact on the jobs market -- is not so straightforward.

Nearly 10 million still outside the jobs market

The question for corporate America, policy makers, and investors is: how much slack is left in the labor market? Take a look at these numbers that reflect the continuing uncertainty we face as the full impact of the Omicron variant – and the potential for future variants – remains unknown.  Will a continuing expansion in 2022 enable the:

  • 5.5 million people who are not in the labor force but want a job to return to the labor force?
  • 3.1 million people who were displaced due to pandemic-related disruptions to their businesses to return to work?  
  • 1.1 million people who were prevented from looking for work due to the pandemic be able to resume their job searches in 2022? 

Aggregated, this means there are still nearly 10 million unemployed people who would like to reenter the workforce.  It remains to be seen whether they will be drawn into the labor force, easing worker shortages and at the same time giving some relief on wage pressures.  Contrastingly, the 3.9% unemployment rate could mean that the labor market is too tight to maintain an expansion into 2023. 

The question of variants

The path of the pandemic will be the key factor dictating the outcomes of the questions posed above. If medical experts such as Dr. Ashish Jha, Dean of Brown University School of Public Health, are correct, the pandemic will fade sometime in 2022, and its impact on the economy and worker behavior will be substantially minimized.  This would be excellent news for the labor market. It would mean supply shortages from lack of workers would be minimized. Inflation pressures due to said supply shortages would ease. And it will mean people suffering with emotional and physical health problems stemming from the pandemic can begin to heal. It would likely also mean the economy would be well poised for an expansion that could continue for several more years. Will Omicron or another Greek letter erode this progress? How will the economy attract workers back to the nursing and childcare professions that are still experiencing record deficits of workers? However, if we have additional waves or variants, improvements in the labor market could encounter setbacks. So long as those setbacks are temporary and minimal, we anticipate the economy can continue to grow in 2022 at nearly 3% or more. We also believe that an economy with a 3.9% unemployment rate can handle interest rates that are above the zero-lower bound. In other words, a Fed Funds rate of, say, 0.75% by the end of the year would still be an accommodative monetary policy stance that would still foster solid growth.

In conclusion, while the December jobs report came in below expectations, and we anticipate a soft report in January due to the Omicron variant, if the pandemic fades in 2022 we can expect average monthly jobs growth over 250k as sidelined workers return to the labor force. And, although scarring from the pandemic in professions such as nursing, childcare, and education will continue to be felt well into 2023, in time and with the proper policy measures, this too can heal.