December jobs report: Payrolls rise by 199,000 as unemployment rate falls to 3.9%

The U.S. economy unexpectedly saw a slowdown in hiring in December compared to November, while the unemployment rate improved to a fresh pandemic-era low.

The Labor Department released its December jobs report Friday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:

  • Non-farm payrolls: +199,000 vs. +450,000 expected and a revised +249,000 in November

  • Unemployment rate: 3.9% vs. 4.1% expected and 4.2% in November

  • Average hourly earnings, month-over-month: 0.6% vs. 0.4% expected and a revised 0.4% in November

  • Average hourly earnings, year-over-year: 4.7% vs. 4.2% expected and a revised 5.1% in November

The labor market posted a twelfth consecutive months of job growth in December, albeit with gains coming at a rate slower than many expected. Consensus economists expected that December payrolls increased by over 400,000, or more than double the tally from November, when a slowdown in service-sector hiring had weighed on overall employment growth.

"It's a solid report. Obviously it didn't hit what the experts had said ... but when you look at 2021 as a combined total, as the president has been sworn into office, passed the American Rescue Plan, 6.4 million jobs have been added, which is a record," U.S. Secretary of Labor Marty Walsh told Yahoo Finance Live on Friday.

"There's no question that we still have people out of work, we have people that have left the workforce. We're working on also inflation," he added. "So we do have some work to move forward."

By industry, some of the services-related sectors hardest-hit initially by the pandemic saw muted hiring at the end of December. Leisure and hospitality jobs rose by 53,000 in the last month of the year, rising compared to November's gain of 41,000, but coming in well below the 211,000 seen in October.

Other industries saw a deceleration in hiring in December. Transportation and warehousing jobs rose by just under 19,000 during the month after a rise of more than 42,000 in November, while professional and business services positions rose by 43,000 after a gain of 72,000 during the prior month. Education and health services employment gains totaled 10,000, slowing from 14,000 in the prior period. Meanwhile, retail trade employers shed jobs for a back-to-back month.

In the goods-producing sector, both construction and manufacturing employment growth also slowed compared to December. Manufacturing jobs gains alone came in at 26,000, missing consensus estimates for a rise of 35,000.

Even given the latest surge in virus cases, many economists suggested more pronounced Omicron-related impacts to the monthly labor market data are unlikely to appear until at least the January report. The Labor Department collects data for the monthly jobs reports during the week including the 12th of the month, which may have been too early to capture disturbances from the Omicron variant discovered in the U.S. in late November.

But despite the disappointment on headline payrolls, other metrics within the report were as strong or stronger than economists were anticipating. The unemployment rate improved more than expected to 3.9%, or the best level since February 2020's 50-year low of 3.5% before the pandemic. And the labor force participation rate was upwardly revised by a tick to 61.9% for November and held at this level in December. The size of the civilian labor force remained lower by more than 2 million compared to pre-pandemic levels, however.

"While the 199,000 gain in non-farm payrolls once again disappointed the consensus, a much larger gain in the household measure of employment and a tepid rise in participation pushed the unemployment rate back below 4%," Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note on Friday. "Together with another exceptionally strong monthly increase in wages, that raises the odds the [Federal Reserve] brings forward plans to raise interest rates and run down its balance sheet this year."

And indeed, heading into the December jobs report, other economic data have been upbeat in registering the labor market's momentum. During the survey week for the monthly jobs report, weekly jobless claims came in just above 200,000 — or at a level below the 2019 weekly average from before the pandemic. And ADP reported on Wednesday that private-sector employers added back 807,000 jobs in December, coming in at nearly double the consensus expectation and marking the biggest rise since May.

But even as jobs return, churn has increased in the labor market beneath the surface, adding pressure to employers looking to bring on and retain workers. A record 4.5 million Americans quit their jobs in November.

And as competition for workers increased, so too have wages. Average hourly wages accelerated more than expected to a 0.6% month-over-month clip in December. And on a year-over-year basis, average hourly wages were up 4.7% in December, or well above the 4.2% increase anticipated. These still-elevated wage increases have also added fuel to concerns about inflation during the recovery.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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