U.S. hiring moderated in December to close out a record year for job gains ahead of disruptions from the Omicron variant, with declining unemployment and robust wage growth suggesting the economy will grow solidly this year.
Employers added 199,000 jobs in December, below average monthly job growth of 537,000 in 2021, the Labor Department said Friday. Slower job growth in recent months largely reflects companies’ inability to find workers as labor supply remains tight, some economists said.
Last month’s payroll gains left the U.S. economy with about 6.4 million more jobs than at the end of 2020—a greater increase than in any year on record—but the nation remains 3.6 million jobs short of pre-pandemic levels.
The broader economy regained its footing with the distribution of Covid-19 vaccines and strong demand from consumers armed with government stimulus who stoked spending. But the pandemic also delivered setbacks, including surges in virus cases and supply-chain disruptions that slowed growth.
The labor market, while still recovering from the pandemic, is entering the year on much better footing than it did at the start of 2021. In recent months, job openings surged to historically high levels and workers quit their jobs at record rates.
“I think 2022 will still be a very strong year for the labor market and the economy after this Omicron disruption at the start of the year,” said Julia Pollak, economist at jobs website ZipRecruiter.
Retailers and manufacturers are close to fully recovering losses from early in the pandemic. Leisure and hospitality employers, which were hit particularly hard, have made strides since last January but are still 7% below pre-pandemic payrolls levels.
The unemployment rate fell to 3.9% last month from 4.2% in November. Many employers are ramping up pay as they compete for a limited pool of workers. Average hourly wages increased 4.7% in December from a year earlier, holding well above wage growth of roughly 3% preceding the pandemic and playing a part in historically high inflation.
The evidence of a tight labor market and high inflation is likely to keep Federal Reserve officials on track to lift interest rates from near zero as soon as their policy meeting in March.
Friday’s jobs report captures hiring activity that occurred before the Omicron variant spread rapidly in late December. Though the variant has taken a toll on some businesses’ revenue, many employers are clinging to the workers they have as consumers continue to spend. Jobless claims, a proxy for layoffs, clocked in at 207,000 last week, near the lowest level in five decades.
Economists say businesses and workers are gradually learning to live with successive waves of the coronavirus pandemic, limiting economic damage. Still, Omicron threatens to temporarily dent the economy through a different mechanism than previous virus waves, which triggered government restrictions on business and a pullback in consumer demand. Omicron is, by comparison, sending millions of sick workers into quarantine, exacerbating labor shortages. Without enough staffers, restaurants are closing temporarily, airlines are canceling thousands of flights and public-transit systems are suspending services.
In December, about 1.7 million workers were employed but absent from work because of sickness, the Labor Department said. Ms. Pollak estimates that about 4.6 million workers could report absences due to illness in January if the nation logs an average of one million new coronavirus cases per day in the week of the January jobs report survey.
Employee absences will likely hurt production and slow services without leading to widespread layoffs. Many economists expect employers to remain in hiring mode because they still have roles to fill amid strong consumer demand.
Kayla Gamin of Rockville, Md., wanted a second job to stay busy and help supplement her main income as a government lawyer. She said she hardly had to look. The 35-year-old landed a side gig as a restaurant server with the first employer she contacted—a fine-dining sushi restaurant—even though her only relevant experience was a job at an ice-cream shop a few years ago.
She attributes the ease with which she found the role to companies’ urgent need for labor. “I feel like it’s a great time to get a second job,” Ms. Gamin said.
Ms. Gamin concocts mixed drinks and serves miso soup, sushi and udon noodle soup on Saturday and Sunday shifts for $20 to $25 an hour. She intends for the extra income to help pay off student loans.
A continued pickup in the number of people who are searching for work could help employers who say they are desperate to find workers. Labor-force participation was 61.9% in December, below its pre-pandemic level of 63.4%
Doug Watts, chief executive of Cincinnati-based Metalworking Group, said less government stimulus is a potential factor helping ease labor shortages at his metal-parts manufacturing company.
Strength in e-commerce helped drive up orders last year among many of Metalworking’s customers, including transportation and logistics companies, Mr. Watts said. In need of workers, the company hired high-school students over the summer to help tackle its largest project to date, work that entailed the construction of metal chutes, he said.
“That really helped us get through a time where we were not sure how we were going to satisfy our customers,” Mr. Watts said.
Finding employees, particularly for entry-level roles in assembly and packaging, has been easier in recent months, possibly because some sidelined workers depleted their savings while others ran through their unemployment benefits, Mr. Watts said. Metalworking now has about 180 employees, up from 160 last spring.
Mr. Watts said Omicron has caused slight business disruptions: A handful of Metalworking employees were quarantining earlier this week because of Covid-19. A more pressing concern, he said, is that the company will lose workers with the potential implementation of the federal vaccine-or-test mandate for employers with at least 100 workers—an initiative that faces legal uncertainty. Whether that rule can be enforced is pending before the U.S. Supreme Court.
About 55% of Metalworking’s staff is vaccinated, Mr. Watts said. He added that he realized how unlikely many of his employees were to get shots when he offered on-site vaccinations—and $100 Amazon or Target gift cards—and just two workers signed up.
Continued pandemic-related disruptions are a significant impediment to workers rejoining the workforce—especially child-care shortages, unpredictable school schedules and, for older workers who might have retired early, fear of infection. Omicron-related closures of several large school districts this week could have ripple effects in the coming weeks, especially if virus caseloads continue to surge.
Many workers are reaping their biggest pay increases in years as a result of the labor shortages. For companies, higher labor costs are hitting at the same time many must contend with rising inflation for materials and inputs. About 13% of small-business owners in a National Federation of Independent Business survey said labor costs were their biggest business problem, a 48-year record.
John Culpepper, a franchise owner of four Express Employment Professionals locations in Georgia, said average pay rates have risen sharply. Workers the staffing firm placed in light-industrial and office jobs earned an average of $16 an hour in December, up from about $14.50 an hour a year earlier. Companies ramped up pay rates last year to compete with expanded federal unemployment benefits, he said.
“They haven’t come back down because it’s such a competitive market to try and find workers,” Mr. Culpepper said.
—Gabriel T. Rubin contributed to this article.
Write to Sarah Chaney Cambon at sarah.chaney@wsj.com
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