US job growth expected to accelerate in December ahead of Covid surge

US jobs growth is expected to have accelerated in December ahead of the surge in Covid-19 cases linked to the Omicron variant, which would reinforce the Federal Reserve’s decision to hasten how quickly it reduces the amount of stimulus it is providing.

Employers are expected to have added 444,000 jobs last month, according to a consensus forecast compiled by Bloomberg, more than double the 210,000 positions created in November.

The unemployment rate is set to fall further after a sizeable drop the previous month. Economists have predicted an 0.1 percentage point decrease to 4.1 per cent.

The data, which will be released by the Bureau of Labor Statistics at 8.30am US eastern daylight saving time on Friday, are also set to show another marginal improvement in the share of people employed or looking for a job.

Concerns about catching Covid and childcare issues are chiefly to blame for holding back a more substantial return to work, keeping the so-called labour force participation rate below where economists anticipated it would be at this stage of the recovery.

It is expected to have inched higher to 61.9 per cent in December, up from 61.8 per cent in November but still more than 1 percentage point shy of the pre-pandemic threshold.

US central bank officials are waiting on further improvements in the labour market before proceeding with plans to raise interest rates in the face of extremely high inflation. The Fed has said it would delay “lift-off” of its main policy rate from its ultra-low levels until it achieves inflation that averages 2 per cent over time and maximum employment.

Top officials saw the first goal as “more than met”, according to minutes from the December policy meeting, and “rapid” progress towards the second. Several members of the Federal Open Market Committee and regional branch presidents said labour market conditions were “already largely consistent” with maximum employment.

Some even speculated whether it would be appropriate to raise interest rates before maximum employment is achieved, especially if price stability concerns grow more acute.

Christopher Waller, a Fed governor, and James Bullard, president of the St Louis Fed, are among those who support an interest rate increase in March, with additional adjustments appropriate later in the year. Most Fed officials see three rate rises in 2022 and another five by the end of 2024.

The economy might also be in a strong enough position for the Fed to begin scaling back the size of its enormous balance sheet after the first interest rate adjustment, the minutes indicated, another substantive step to remove accommodation.

The decision stems directly from a sharp acceleration in inflation, which now hovers at the highest level in roughly 40 years. Jay Powell, the Fed chair, recently said the central bank was watching wage growth closely for further evidence that inflation could morph into a more persistent problem.

Economists expect average hourly earnings growth to have moderated slightly in December, increasing 4.2 per cent on an annual basis, down from 4.8 per cent in November. That translates to a 0.4 per cent month-on-month increase.

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