By Geoffrey Smith
Investing.com -- The U.S. labor market lost momentum significantly in November, defying expectations for another strong month of job gains.
The Labor Department said nonfarm employment rose by only 210,000 through the middle of the month, down from 546,000 in October. The latter figure was revised up by 15,000 from its original estimate, but didn't come close to offsetting the disappointment of the November number, which was over 300,000 short of a consensus forecast of 550,000. Expectations for a strong report had hardened after payrolls processor ADP had said on Wednesday that the private sector had added 534,000 jobs in the month, by its calculations. There has also been little to suggest a weakening in labor market in other data, with the monthly Job Openings survey continuing to show near-record levels of vacancies.
Despite the big shortfall in job creation, the unemployment rate fell by more than expected to 4.2% of the workforce from 4.6% in October. That reflected an increase in labor force participation, which rose to 61.8% of the adult population, from 61.6% in October. The participation rate, which has been a particular problem holding back the economic recovery this year, is now at its highest since March last year.
"Notable job gains occurred in professional and business services, transportation and warehousing, construction, and manufacturing," the Bureau of Labor Statistics said, adding that employment in the retail trade actually declined in the month leading up to the Thanksgiving holiday.
The expansion of the labor force should, all other things being equal, take the steam out of some of the inflationary pressure that has built over the last year, in an environment of sustained high spending despite increasing supply-side constraints and bottlenecks. Federal Reserve Chairman Jerome Powell acknowledged earlier this week that inflation was likely to remain higher for longer than at first estimated, largely due to such supply-side issues.
However, all other things appear increasingly unlikely to stay equal in the near term, given the emergence of a new and seemingly more infectious strain of Covid-19 over the last week. The Omicron strain is now spreading rapidly through South Africa, the first country where it was detected, and has already been identified in more than two dozen countries across the world. Much of Europe has already announced a fresh wave of mobility and social distancing restrictions, with Germany - Europe's largest economy - effectively locking down unvaccinated adults in a suite of new measures prepared by the new government. U.S. President Joe Biden has announced the tightening of testing requirements on people arriving in the U.S. It is unclear that that will be enough to stop Omicron from spreading in the community.
"Labor supply simply isn't returning quickly enough and, for companies desperate to hire, this is a huge problem," said ING chief international economist James Knightley in a note to clients. "The implication is that it constrains growth and pay is bid higher, with those cost increases likely passed onto consumers."
He noted that the discrepancy between what employers were saying and what households were saying (the household survey of employment rose by over 1 million) made it hard to interpret the numbers cleanly.
"Effectively you can defend any position by picking out the bits of the report that suits your view," Knightley said.