American Economy Shakes Off Omicron, Tapering

The American economy shook off the resurgence of the COVID-19 pandemic and the Fed’s tapering, according to several statistics released by the U.S. government and private agencies this week.

First, there is the release of the December IHS Markit US Composite PMI, which came at 57 in December 2021, in line with a preliminary estimate of 56.9, and November’s reading of 57.2. A number above 50 indicates that business activity around the U.S. is expanding.

December business activity was led higher by a solid rebound in the service sector and new orders, which grew fastest in the last five months. That could explain a spike in input costs, which was passed on to consumers in the form of higher selling prices.

Then there’s the release of the ADP employment report, which showed that private businesses in the U.S. hired 807,000 workers in December 2021. That’s twice what forecasters expected and the highest in seven months.

Again, the trade, transportation, and utility sectors led the job gains followed by education, health services, and manufacturing, with most of these jobs provided by large companies.

Nela Richardson, chief economist, ADP, attributes the significant December job gains to the ease of the spread of the Delta variant of COVID-19, as the spread of the Omicron variant has yet to be captured by the ADP survey.

“December’s job market strengthened as the fallout from the Delta variant faded and Omicron’s impact had yet to be seen,” said Richardson, in a statement following the release of the ADP report. “Job gains were broad-based, as goods producers added the strongest reading of the year, while service providers dominated growth. December’s job growth brought the fourth quarter average to 625,000, surpassing the 514,000 average for the year. While job gains eclipsed 6 million in 2021, private-sector payrolls are still nearly 4 million jobs short of pre-COVID-19 levels.”

Jobless Report

There’s the Initial Jobless report for the week ending January 1, which showed that the number of Americans filing for unemployment benefits increased by 7,000 to 207,000, in line with market expectations.

Nonetheless, the unemployment benefits claim number remains well below the pandemic levels, suggesting that the labor market continues to improve.

These all bode well for the extensive market report, which is to be released by the Labor Department tomorrow. The December nonfarm payroll, a measure of the net job growth across the economy, and the December unemployment report measure the number of people who aren’t employed but are actively looking for a job.

Both reports have been distorted lately due to labor market frictions, government policies, and the resurgence of the pandemic. Thus, predicting how the numbers will come out is a wild guess.

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