By Howard Schneider

WASHINGTON (Reuters] – A record number of U.S. employees are moving on to other jobs, and a decrease in the hiring rate at front-line companies may be signs that COVID-19 has drained the labor market. The Federal Reserve could conclude that there is a limit to employment.

Homebase tracked the hiring data of small businesses and found that employment fell through December. It coincided with a record-breaking outbreak Omicron virus infections.

In the final days of 2021 it fell by 15%. While a seasonal drop was to be expected between Christmas Eve and January 31, the fall was much deeper than last year’s 10% decline. (Graphic: Jobs in real time, https://graphics.reuters.com/USA-ECONOMY/REOPENING/dwpkrragmvm/chart.png)

New government data from November revealed that workers were leaving their jobs in record numbers. This was especially true for lower-paid, often front-line, service-sector roles, where there are greater health risks and less work-from home options.

Economists believe that with job opportunities at record levels, and consumers still wanting to work despite the outbreak of infection, it will lead to more pressure for companies to increase wages. This could also put more pressure on Fed officials to announce that their goal of “maximum unemployment” is close to being achieved, or even exceeded.

The U.S. central banking’s goal of meeting that target is to raise interest rates. Policymakers from the Fed’s December 14-15 meeting expressed their satisfaction with that benchmark. The minutes of the meeting will be published on Wednesday. They provide more information about a session in which the Fed launched a concerted effort to combat inflation. This led to a Fed that has been running at almost three times the targeted rate of 2.2% per year, and laid the foundation for an interest rate rise as soon as March.

Neel Kashkari of the Minneapolis Fed, a prominent Fed official who has wished to delay interest rates increases to encourage more job growth, stated that he had already penciled two rate rises in 2022 as of last month’s meeting, partly because he was unsure about whether people would be willing to go back to work.

Kashkari explained the dramatic shift in his outlook on policy by writing, “Wages are currently climbing rapidly across different income categories,” “The COVID-19 shock is still affecting the labor market. It is not clear how long it will take for the workers who were there before them to come back. It appears that the demand for workers is higher than the supply at this point.

On Friday, the U.S. Labor Department will release their December employment report.

WAGE GROWTH

It is still unclear how Omicron-related Omicron Infections will affect the Fed and the economy. A few analysts believe that the recent pandemic has caused them to lower their forecasts of economic growth for 2022. However, this is not a significant change considering the magnitude of previous outbreaks.

This new variant is less hazardous so far. Fatalities and hospitalizations do not seem to be increasing at the same rate as case numbers. Data on December air travel data, for instance, does not suggest that people are racing to become isolated. (Graphic: Air travel holds steady, https://graphics.reuters.com/USA-ECONOMY/PIVOT/xmvjonnwmpr/chart.png)

At the end of November, there were over 1.5 available jobs for everyone who was unemployed. Another record that shows a labor market with wage growth where workers are either leaving for better conditions, higher salaries, or to avoid becoming sick.

According to Nick Bunker (economic research director at the Indeed Hiring Lab), an affiliate of the online job- and recruitment site, “Lots a quits mean stronger worker bargaining power, which will likely feed into high wage gains,” he said. “Wage growth in 2021 was strong… we might see more in 2022.” (Graphic: More jobs than jobseekers, https://graphics.reuters.com/USA-FED/JOBS/egvbkmeoepq/chart.png)