The Last Days of the Pandemic Boom

Photo: Alexi Rosenfeld/Getty Images

The Labor Department on Friday released a blow-out jobs report showing that the economy added about a million new jobs in December and January combined, with the unemployment rate rising a smidge to 4 percent. The numbers not only came in hotter than what economists had anticipated but essentially corrected the record around the perceived hiring slowdown from the Omicron variant. This is a solid report pretty much every way you look at it. It’s easy to think of the economy as separate from people, a Rube Goldberg machine of financial engineering that doesn’t have anything to do with actual lives. But jobs are a pretty clear reflection of what people do during the day and, with restaurant and leisure jobs picking up, where they go on nights and weekends, too. It’s a reflection of a population that’s either vaccinated, recovered, or over it. And it’s a sign that this economy is very, very quickly about to end.

First, the really good news. When Omicron hit its national peak last month, rising to more than 800,000 confirmed cases a day, something unexpected happened in the economy: a larger number of people started looking for a job. This is called the labor-force-participation rate, and it has been one of those metrics that has persistently lagged. A big part of this is that more people retired during the pandemic, but there are also those who had to stay home to take care of children or who couldn’t work because of health reasons. Proportionally, that has fallen on women. But in January, more women started to enter the workforce, particularly Black women, whose participation rate jumped by 0.8 percent for the month. While the rate is still below where it was just before the pandemic started, it has now inched up much closer to where it was — and much faster — than economists had expected even a year ago.

The general picture of the economy here is that the country went on a hiring spree and started to pay more for it than ever before. There were 151,000 new jobs added in the leisure and hospitality industries in January, with the vast majority of those concentrated in restaurants and bars. This is also where wage gains have historically been during the pandemic, with workers securing paychecks that are rising faster than inflation. (That these tend to be low-paying jobs probably explains that, though.) The even broader picture is that this is coming as the country’s savings, built up during the pandemic from stimulus payments and less time going out, have been exhausted, thanks in part to the 7 percent annual inflation rate. So while people are less able to stay home, they are also seeing that they have less reason to, since those who are vaccinated have typically been able to weather this most recent wave of infection. “Omicron was a headwind at the turn of the year, but each successive wave of the pandemic is slowing the recovery less,” Bill Adams, chief economist for Comerica Bank, said in a statement.

What this means for the future, though, is that this roaring economy isn’t likely to last much longer. Standing in its way is the Federal Reserve, and its chair, Jerome Powell, who is preparing to embark on a program to raise interest rates. Wall Street has been predicting as many as seven quarter-point interest-rate hikes this year from the central bank. Those higher interest rates typically hamper businesses and are likely to eat into job growth and wage gains in order to keep consumption down.

The real risk, though, is that a regime of rate hikes won’t just be a mild tempering of the economy. After all, there are more than 10 million open jobs, far more than there are people who are out of work, so anyone who wants one could theoretically get one. The issue is that this report is essentially so good that it gives the Fed the green light to move too far, too fast, and shock the economic system. There’s always a risk that the Fed could misread the economy and send it into a recession, and this is something that has been increasingly worrying those in the bond market. The Fed is likely to start pumping up rates at its mid-March meeting, so Powell still has time to see how fast inflation is spiking before making any decision. But while it’s clear that this economy has been able to handle Omicron, how resilient it will be to the Fed is still anybody’s guess.

The Last Days of the Pandemic Boom