U.S. economic activity exceeded forecast in December, adding more jobs than predicted and helping maintain a resilient labor market despite rising borrowing costs. According to the Labor Department, nonfarm payrolls increased by 216,000, driven largely by gains in government, health care and leisure and hospitality – offsetting any declines seen in transportation and warehousing industries.
Government
The Labor Department’s monthly nonfarm payroll report gives insights into how many Americans work for companies across the U.S. It also shows how much each of them are being paid; higher numbers indicate economic expansion while decreasing numbers may signal concerns over inflation.
Data for private sector employment is released every first Friday of every month and specifically covers jobs at private sector businesses; it does not include farming workers, private household employees, proprietors or non-profit organization workers. Market participants, including forex traders who trade USD pairs regularly, closely track this report.
An increase in employment could indicate that the economy is strengthening, prompting the Federal Reserve to raise interest rates; conversely, an unexpectedly weak employment figure might prompt them to lower them instead. Any figure above expected consensus is positive news for markets; any surprise on the upside can often help bolster the dollar.
Health Care
December’s employment growth was led by governments (both state and local), health care, and social assistance industries – two industries less susceptible to business cycles and market fluctuations that have contributed significantly to nonfarm payroll increases month over month.
hospitals have experienced staffing shortages as a result of employee burnout, the Delta/Omicron Surge and increasing patient acuity/demand; contract staffing firms have had to step in to fill these gaps.
December’s payroll growth showed this trend clearly. Ambulatory health care services and hospitals gained 38,000 jobs since November – an increase that exceeded forecasts by 17,000. Wages also continue to expand steadily, rising 0.4% year-over-year and 0.4% since November – supporting consumer spending growth, helping spur economic expansion beyond expectations and making it less likely that the Federal Reserve will cut interest rates anytime soon.
Leisure & Hospitality
Travel restrictions have eased somewhat, yet restaurants, bars, hotels, and other leisure-oriented businesses continue to struggle. Like other high-contact service sectors, restaurants were particularly sensitive to COVID-19 related policies such as vaccine mandates and capacity limitations; furthermore they employ younger workers with lower educational attainment who may become jobless during economic shocks.
Within two months of the pandemic, leisure and hospitality payrolls dropped by nearly 8 million (Figure 1, solid red line). This comprised roughly half of all private sector job losses but only 13 percent of pre-pandemic private employment.
One year later, increased consumer trust, vaccine availability and federal aid have brought leisure and hospitality employment levels back up in the Eighth District. Unfortunately, with the emergence of delta variant and ongoing anxiety over future outbreaks threatening further progress. Furthermore, dense urban cores remain devoid of new restaurants and bars suggesting entrepreneurs anticipate continued weakness in demand for leisure services.
Construction
Payrolls surged 216,000 in December, far exceeding estimates and more than tripling November’s gains of 173,000, according to the Labor Department. Most sectors saw job creation including health care, local government and social assistance sectors while construction firms continue to struggle finding workers despite consistent wage increases.
The report revealed payrolls in Covid-19-affected leisure and hospitality have experienced an impressive rebound from contraction, adding 83,000 jobs since January 2016. Although still significantly below its pre-pandemic peak, health care, professional and business services, and transportation and warehousing experienced strong job gains while construction saw declines.
The recent decline in monthly hiring data correlates with evidence that companies have started scaling back hiring as interest rates rise, increasing borrowing costs and consequently slowing consumer demand. This report will put additional pressure on the Federal Reserve to postpone raising interest rates until there is sufficient proof that employment levels have reached full capacity.
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