The American economy likely saw strong job gains in the final month of 2021, which could shorten the timeline for the US central bank to raise interest rates.
The Federal Reserve has been setting the stage to increase borrowing costs more aggressively to rein in growing inflation, and that prospect sent markets into a tailspin this week, even though policymakers have telegraphed the possibility of rate hikes in advance.
The Covid-19 pandemic and waves of new variants have buffeted the world's largest economy, with massive layoffs followed by a strong recovery and business reopenings followed by renewed closures.
Rather than rushing back to work, many Americans, flush with high savings helped by government aid, opted to stay on the sidelines and out of the labor force, further straining businesses.
In these uncharted waters, supply chain snarls have contributed to a wave of record price increases, all conspiring to complicate the Fed's policy deliberations.
The central bank has nervously eyed inflation as consumer prices hit their highest level in four decades, and began to pull back on its stimulus programs more aggressively in November.
But when it comes to raising the benchmark lending rate off zero, the Fed is waiting to see the economy return to maximum employment -- a difficult-to-define target.
The Labor Department is set to release its December employment report on Friday, and the consensus forecast is for a gain of 440,000 jobs -- more than double the disappointing November tally.
But some economists think the economy could finally see the boom that they forecast in prior months but which never materialized.
Ian Shepherdson of Pantheon Macroeconomics projects a jump of 850,000 positions, and noted that private surveys indicate hiring could exceed one million.
"The case for expecting the best payroll report since March is compelling," he said.
- Maximum employment target -
After its December policy meeting, Fed Chair Jerome Powell explained that the central bank is waiting for the economy to reach maximum employment before lifting rates off zero.
But while the economy is making "rapid progress" towards the goal, "it is admittedly a judgment call," he said.
Unemployment is expected to dip to 4.1 percent, a tenth below the November rate, but the share of workers in the labor force has struggled to recover.
The conundrum includes a wave of retirements and record numbers of workers quitting their jobs -- either to leave the labor force or simply because they are confident they can get another position easily.
And with the economy still short nearly four million jobs compared to the start of the pandemic, vacancies are at an all-time high.
- 'Has anyone been listening?' -
The greater focus is on rising inflation, which Powell said was not what officials were expecting and driven by supply side barriers rather than rising employment, unlike previous recoveries.
The minutes of the Fed's December policy meeting released Wednesday reiterated an aggressive inflation-fighting posture, which has made more economists project the first rate hike as soon as March, when the central bank finishes its bond-buying program, and three or more in 2022.
That sent Wall Street downward, and the tech-heavy Nasdaq index fell more than three percent, a reaction that baffled some observers.
"Duh, has anyone been listening?" economist Joel Naroff wondered.
"Central banker after central banker has been speaking about how inflation was now a concern and that rates would be going up. Yet when the Fed put into print that it would be doing what it has been signaling it would be doing, investors suddenly got worried," he said.
Mickey Levy of Berenberg Capital Markets is concerned the US central bank is already behind the curve, with inflation high and still rising.
"The critical issue is whether the Fed will actually raise rates sufficiently to contain inflation," he said.