The Labor Department released the December non-farm payrolls which showed that the U.S. economy added 199,000 jobs in the month. This was a big miss from expectations of 422,000 jobs being added. The unemployment rate also dropped to 3.9% from 4.1%. Wage growth also came in above expectations at a 0.6% monthly rate and 4.7% on an annual basis.
Going into the December jobs report, many were expecting a blowout number. Some reasons for this expectation were the ADP monthly report showing that more than 800,000 jobs were added in December, strong economic data, and the household survey which led many to expect a report showing that more than a million jobs were added.
Given these lofty expectations, it's not surprising that the market dropped when the actual December results came in at 199,000. One silver lining of a weak jobs report is that it may push the Federal Reserve in a dovish direction by delaying its rate hikes or asset tapering. This is not the case as the unemployment rate continued to drop and wage growth also came in higher than expectations which is an indication that inflationary pressures continue to persist. Thus, it was the worst of both worlds as it raised possibilities that the economy would slow but the Fed would have to remain hawkish.
One clear factor in the weak figure was the Omicron variant which depressed hiring. The biggest source of job creation was the leisure and hospitality sector which added 53,000 jobs. Professional and business services also added 43,000, while manufacturing added 26,000.
The unemployment rate reached a new pandemic low at 3.9% which is the lowest since February 2020's 3.5%. However, one factor is that the labor force has shrunk as many people are choosing not to work. Currently, the U6 unemployment rate is 7.3%. Overall, the total employment level is about 2.9 million off its February 2020 level. In total, 6.45 million jobs were created in 2021 which is the highest figure since 1940.