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After dismal hiring in November, and despite the emergence of the Omicron variant, economists are optimistic heading into the December jobs report. The results may be the difference between interest rates that start rising in March versus later in the year.
When the Labor Department reports its latest employment situation stats, economists expect to see a nonfarm payrolls increase of 424,000 and a headline unemployment rate of 4.1%. That would reflect twice as many jobs added versus November, which marked the weakest hiring all year, and a new pandemic low for the unemployment rate.
Plenty are more bullish. Ian Shepherdson, chief economist at Pantheon Macroeconomics, says data from payroll providers Homebase and ADP suggest a December nonfarm payrolls reading of 850,000. “Forecasting payrolls during Covid is a nightmare, but the risk to the 424,000 consensus is clear,” he says, adding that he now expects the Fed to begin lifting rates in March.
Stronger hiring would be welcome, even if it reinforces expectations for an earlier Fed liftoff. But investors’ attention should remain focused on the details of the report rather than the headline nonfarm payrolls number and unemployment rate. Inflation is the issue policy makers are most focused on and the labor shortage is at the root of broadening pricing pressure. The two numbers we are watching most closely are labor-force participation and average hourly earnings.
Lydia Boussour, economist at Oxford Economics, predicts a 0.1% increase in the labor-force participation rate. That rate, which reflects people working or actively seeking employment, ticked up to 61.8% in November but remains significantly below its prepandemic level as millions of workers continue to defy expectations for a mass return to work.
Boussour cautions that the risk to her forecast for even a small improvement is to the downside, given Omicron concerns that were already rising during the December report’s survey period. She still expects more people to re-enter the workforce this year but says resurgent Covid cases will probably delay the recovery in participation.
A continuing labor-supply shortage means more wage pressure. For December, Boussour expects average hourly earnings rose 0.4% from a month earlier. We note that the year-over-year pace of wage growth may slow in December from November due in part to calendar effects. That won’t be a signal that the trend has changed. More important is the month-over-month change.
Looking ahead, with labor demand still hot and a record share of small firms planning to raise compensation, wage growth is likely to stay elevated this year, says Boussour. She expects growth in private average hourly earnings to reaccelerate toward 5% in the first quarter before gradually cooling toward 4% in the second half of the year, presuming more people reenter the labor force.
Check back after 8:30 a.m. Eastern time for news and analysis.
Write to Lisa Beilfuss at lisa.beilfuss@barrons.com
Read More: Watch Friday’s Jobs Report for a Signal on Interest-Rate Liftoff