Many US employers had difficulty hiring enough employees to meet recovering business demand
Many US employers had difficulty hiring enough employees to meet recovering business demand GETTY IMAGES NORTH AMERICA via AFP / MARIO TAMA

Hiring in the U.S. ended 2021 with more of a whimper than a bang as only 199,000 jobs were added in December, the Labor Department said on Friday.

In its nonfarm payrolls report, the department found that hiring largely cratered last month with the exception of some limited strength displayed by the service sector. The final figure was less than half of what was projected by forecasters, who expected to see 410,000 jobs added to the economy.

Among the jobs created, leisure and hospitality showed the most growth, adding 53,000 new positions in December. Professional business services were next with 43,000, followed by 26,000 in the manufacturing sector.

Dan North, senior economist at Euler Hermes, told International Business Times that the culprit behind the meager job creation may have to do with concerns about the Omicron variant of COVID-19.

“The weakness in leisure and hospitality, and retail, suggest that the Omicron variant has thrown a wrench into the economy. High frequency indicators such as credit card spending, TSA throughput and OpenTable seatings have all dropped sharply in the past few weeks,” North explained in an email.

North noted the parallels between the last two job reports shared by the Labor Department. The Establishment survey, which gauges employment at firms and government entities alike, he points out was weaker than expected while the Household survey that measures employment on an individual level was the opposite in December's report, much like it was in November. North says that this discrepancy may suggest that a number of competing explanations.

"One reason is that the Household survey includes self-employed people but the Establishment survey does not. More people are becoming self-employed from a combination of being able to work from home, a tight labor market, and a strong economy," he explained.

Wages increased by 4.7%, 0.6% higher than the prior month's report, but slightly below the 5% that North predicted was possible. He cautioned that with higher wages, pressure would increase on the Federal Reserve to raise interest rates faster, noting that the central bank remained “behind the curve” on managing inflation.

Last month, the Fed issued a tentative framework for when it would be raising interest rates from rock-bottom levels. According to the minutes from the last meeting of Fed officials in December, it is possible to see a rate hike as soon as March.

Unemployment dropped to 3.9%, a low figure but one with caveats. The labor participation rate was unchanged at 61.9% in December, but remains 1.5 percentage points lower than in February 2020 before the pandemic reached its apex. This represented a workforce decline of nearly 2.3 million people.