By Lucia Mutikani

WASHINGTON (Reuters] – The U.S. is likely to see an increase in job growth in December. That will culminate in record levels of employment creation in 2021. But the labor market might temporarily lose its luster, as raging COVID-19 viruses disrupt schools and businesses.

Expect Friday’s Labor Department employment report to be closely monitored. The report will reveal a rapidly tightening job market, with unemployment falling to 4.1% (from 4.2% in November). The report will paint a picture that shows an economy closing 2021 with a positive note even though the state of public health isn’t as good as it was hoped.

Ryan Sweet, a Senior Economist at Moody’s Analytics (NYSE:) in West Chester, Pennsylvania, stated that “Unfortunately, the economy’s track is still tethered the pandemic, and Omicron will deliver a significant loss to the economy’s first quarter.”

A Reuters survey found that nonfarm payrolls rose by 400,000 in December, after increasing 210,000 in November. A staggering 6.5million jobs will be created by 2021 if payrolls are expected to meet their expectations.

This would represent the highest annual employment increase since records began in 1939. President Joe Biden will likely highlight this fact, as he celebrates his first anniversary at the White House.

Employment would remain at a low of about 3.5million jobs, below its peak level in February 2020. There were estimates as low as 150,000 and as high as 1,1 million.

In mid-December, the Omicron variant began to ravage the nation and the government conducted a survey of households and businesses for the last month’s employment reports. The United States reported nearly 1 million https://www.reuters.com/world/us/us-reports-nearly-1-mln-covid-19-cases-day-setting-global-record-2022-01-04 new coronavirus infections on Monday, the highest daily tally of any country in the world.

Some school districts have also suspended in-person learning after airlines cancelled thousands of flights. With the return to online education, some parents who are working may need to care for their children.

People are unemployed if they are sick, in quarantine or are not paid for during the payroll survey period.

Michael Pearce is a Senior U.S. Economist at Capital Economics, New York. “The confusion caused by rapid spreading of Omicron variant was too late for December payrolls to have much impact on them, which we estimate rose by a healthy 350,000,” he said. But the large number of individuals being instructed to isolate could cause a drop in payrolls for January.

According to economists, November’s payrolls count could rise. This was the lowest since December 2020. Due to the fact that the government uses a model to remove seasonal variations from data, the forecast for December payrolls remains highly uncertain.

SEASONAL ANOMALIIES

According to economists, anomalies in the seasonal adjustment were noted as depressing the monthly payroll change last December and in December 2020.

Lou Crandall (chief economist, Wrightson ICAP) from Jersey City said, “Unfortunately those anomalies might get more company Friday.” If the seasonal adjustment factors prove to be as inflexible as we had assumed, then we would not accept the disappointing (payrolls level) reported.”

A shortage of skilled workers could also explain why the payroll gains were lower than expected. The government said on Tuesday that there were 10.6 million job openings https://www.reuters.com/markets/us/record-45-million-americans-quit-jobs-november-2022-01-04 at the end of November.

November saw signs that some people who were unemployed were entering the labor force again after losing their government-funded unemployment benefits in early fall. However, Omicron Omicron cases could slow down the process of reentry.

After falling to lows of multi-decades in the first pandemic, labor force participation, which is the ratio of Americans aged 18 and older who currently have jobs or are searching for them, has shown slow improvement.

Goldman Sachs’ (NYSE:) economists expect that participation will be about half of what it was before the pandemic. Most of the older retirees, as well as the middle- and younger-aged workers, will stay out.

As the Federal Reserve prepares for this year’s interest rate hikes, it is closely monitoring participation and unemployment rates. According to minutes from Wednesday’s Fed 14-15 policy meeting, officials of the U.S. central banking said that the labor market was “very tight.” https://www.reuters.com/markets/us/fed-may-need-hike-rates-faster-reduce-balance-sheet-quickly-minutes-show-2022-01-05

In November, the unemployment rate fell four tenths to one percentage point. However, participation rose from 61.6% to 61.8% in October.

According to Veronica Clark (an economist at ), “Another notable drop before the March meeting would suggest an earlier lift-off.” Citigroup New York. If further increases in participation were accompanied by an essentially steady unemployment rate then the June meeting would be a more favorable time to start rate hikes.

Rising wages are a sign of tightening labor markets. The December average hourly wage is expected to rise 0.4%. However, the annual growth is expected to drop to 4.2% in December, compared to 4.8% in November. The calculation excludes last year’s huge gains.

Although inflation has been higher than wage growth, the economic underpinnings of the economy, massive savings and improved job security have allowed consumers to continue spending. The growth last year was the strongest since 1984.