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Omicron variant could become another speedbump on the road to economic recovery

NOEL KING, HOST:

Hiring slowed last month, surprising a lot of forecasters. U.S. employers added 210,000 jobs in November. That's down from more than half a million in October. NPR's chief economics correspondent Scott Horsley is here with an update. Good morning, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Noel.

KING: What happened?

HORSLEY: Well, we should start with the caveat that this is based on surveys taken three weeks ago, before the discovery of the omicron variant. But we now know that even before the arrival of that variant, COVID cases had been growing in the U.S., and it looks as though job growth was already losing some momentum. A Labor Department survey of businesses shows much slower hiring in bars and restaurants last month. They've been a bellwether throughout the pandemic. Retail stores actually lost jobs in November, which actually means there was less than the usual hiring ahead of the holiday season. We did see job gains in construction and manufacturing and warehouses, but overall pretty lackluster employment growth.

KING: At the same time, the unemployment rate actually went down to 4.2%. What happened there?

HORSLEY: Yeah, that's based on a separate survey, not of businesses, but of households. And that household survey paints a very different picture. It shows more than half a million people rejoining the workforce last month and more than a million finding jobs. Usually, these two surveys move more or less in the same direction, but this is a month when they're telling very different stories.

KING: In part because there are still a lot of people who could be working but are not, is that right?

HORSLEY: That's right. Now, with half a million people joining the workforce in November, that is some progress on that score. But, you know, there are still about 2.4 million people who dropped out of the workforce during the pandemic and who have not yet returned. Some of these are older workers who simply retired. Others are waiting for an improvement in the health outlook. Maybe they're busy looking after kids or family members who might be sick. Some people are just taking this opportunity to reassess what they want to do with their lives. But whatever the cause, a lot of people are still not working or looking for work. And Federal Reserve Chairman Jerome Powell told a Senate committee this week that is a challenge for the broader economy.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: We all thought there would be a significant increase in labor supply, and it hasn't happened. So you ask, why? There's tremendous uncertainty around that, but a big part of it is clearly linked to the ongoing pandemic.

HORSLEY: Now, Powell does not expect the new omicron variant will do anything like the damage to the job market that the first wave of the pandemic did in the spring of 2020. But it's certainly possible it will drag out the recovery and keep more would-be workers on the sidelines longer. If people are not available to do those jobs, that could just worsen the supply chain bottlenecks, which have already helped to push inflation to its highest level in more than three decades.

KING: How worried is the central bank about inflation?

HORSLEY: Powell and his colleagues are starting to sound a little bit more worried. Many observers now think the central bank will raise interest rates earlier next year than had been expected in an effort to keep a lid on rising prices. Up until now, the Fed's been willing to tolerate somewhat higher inflation in hopes of fostering stronger job gains. But as the recovery drags on, Powell's starting to rethink that balancing act.

(SOUNDBITE OF ARCHIVED RECORDING)

POWELL: To get back to the kind of great labor market we had before the pandemic, we're going to need a long expansion. To get that, we're going to need price stability. And in a sense, the risk of persistent high inflation is also a major risk to getting back to such a labor market.

HORSLEY: In other words, Powell's suggesting there doesn't have to be a trade-off between the Fed's two goals of maximum employment and stable prices, maybe need one to get the other. But this weaker-than-expected jobs report is going to put the Fed in a dicey situation as policymakers meet in a couple weeks.

KING: NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.