The U.S. economy ended 2021 on a sour note with a worse-than-expected employment report Friday underscoring the challenges awaiting President Joe Biden in the new year, as the Omicron variant runs rampant and his legislative agenda stalls.
The world’s largest economy gained only 199,000 jobs in the final month of the year, the Labor Department said, defying expectations for an increase of hundreds of thousands of positions fueled by the recovery from Covid-19.
However, the unemployment rate dropped to 3.9 percent, not far from where it was before the pandemic struck, and Biden hailed the report as marking “a historic day for our economic recovery.”
Analysts warn the days ahead may nonetheless grow darker as Covid cases caused by the new variant surge and again complicate daily life.
“All of this is before Omicron, which is making lots of people sick and disrupting lots of businesses,” Mark Zandi of Moody’s Analytics tweeted, noting that the survey was based on data collected before the recent spike in infections.
“Businesses are getting better at managing through the waves, but the pandemic is still calling the shots for the economy.”
The data was the latest setback for Biden after his marquee spending plan called Build Back Better was put on hold in Congress due to the resistance of a key lawmaker in his Democratic Party.
The Republican opposition in the Senate meanwhile tweeted that the report marks “another huge miss for the Biden economy.”
The recent surge in inflation has sapped public support for Biden, however the most potent actor against it is not the White House but the Federal Reserve.
Analysts say there was enough good news in this report for the independent central bank to move closer to increasing interest rates as soon as March, but the expected damage from Omicron could complicate the situation.
“In the context of a rapidly deteriorating health situation, the (first quarter) lull in economic activity will force Fed Chair (Jerome) Powell to walk a tightrope at the upcoming policy meetings,” Gregory Daco of Oxford Economics said.
The United States added an average of 537,000 jobs per-month for a total of 6.4 million last year, while the fall in the unemployment rate also brought it near to the 3.5 percent level of February 2020, before the economy collapsed.
A separate Labor Department household survey showed the number of employed people rose by 651,000 in December, a sign the report may have been stronger than the headline indicates.
“Last year ended with fewer new positions being created than expected, but the headline payroll number really should not be the focus of attention,” economist Joel Naroff said.
“Available labor is the problem facing businesses and that continues to disappear.”
The government also revised upwards the employment gains for October and November, saying they were a combined 141,000 jobs higher than previously reported.
But as businesses continue to struggle to fill open positions, the labor force participation rate, a closely watched metric of people either working or looking for jobs, was unchanged last month at 61.9 percent, after spending most of last year idling.
And disparities among racial groups remained, with the jobless rate for African Americans rising 0.6 points to 7.1 percent, while the rate for white Americans fell.
Biden managed to pass two major spending bills last year to fight the pandemic and upgrade the country’s infrastructure, but was less successful at cutting into the wave of price increases.
Economists are debating the factors responsible for the inflation, including the role salaries have played. Employment data showed average hourly earnings rose 4.7 percent over 2021, not far from the rate of inflation.
The Fed has already signaled it is ready to raise rates, potentially as many as three times in 2022, which could tame the price spike.
The report “won’t trigger any changes in the Fed’s stance, but they make us more confident in our forecast that the first rate hike will come in March,” Ian Shepherdson of Pantheon Macroeconomics said.
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