skip navigation

Stay up to date on timely topics and market events. Subscribe to our Blog now.

07 January 2022

December Job Growth Below Our Expectations, Even Further Below Market's

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Private-sector nonfarm payrolls grew by 211,000 in December. This was below the 300,000 per month growth range we had expected to hold in late-2021 and even further below consensus estimates, which congregated around 400,000 or more. (Meanwhile, the ADP survey Wednesday showed job gains of 807,000.)

As confounding as this softer gain might seem in view of expectations, it is in line with the trends of recent months, which had shown slowing job growth since last spring. You can see this in the chart.

Exhibit 1: Private-Sector Job Growth Decomposed
Private-Sector Job Growth Decomposed
Source: Bureau of Labor Statistics. As of 31 Dec 21. Select the image to expand the view.

Restaurants had generated much of the stronger job growth early in 2021. By mid-year, however, both restaurant sales and payroll levels had nearly re-attained pre-Covid trends, this despite the lingering restraints restaurants were operating under. We thought restaurant sales and payrolls would top out at June/July levels, and this has indeed happened.

Meanwhile, the other service sectors hardest-hit by Covid restrictions also saw a brief surge in activity and payrolls early this year, as restrictions were eased. However, these sectors too topped out around July, as remaining restrictions and consumer fears inhibited further growth.

In the rest of the economy, recovery is complete—or more than complete in manufacturing and construction. These are seeing some further job growth, but nothing like what they experienced in late-2020.

In the remaining service sectors, employment levels are still way below pre-Covid trends, but even here job growth has recently slowed noticeably in the last two months. It is the slower growth in these sectors which has pulled the jobs gains of November and December below the 300,000 range we were expecting.

Perhaps the yet-slower growth in these “other” sectors in November and December will be followed by better gains in early-2022. Even if this happens, it would take the economy another two years to re-attain pre-Covid payroll job growth trends (at the 2021 average pace for these sectors). If these other sectors continue at the pace of the last two months, it will take much longer.

Meanwhile, we expect labor force growth to pick up further in months to come, now that extended unemployment benefits have expired and the holidays are behind us. If this happens and job growth remains 300,000 per month or less, unemployment will rise. We doubt this was reflected in the Fed’s calculus when it discussed possible rate hikes last month, and we doubt that those hikes will in fact occur.

© Western Asset Management Company, LLC 2024. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").
Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.
These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.
Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.
Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.
Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.
These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.
Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.