Employment Report Disappoints

The U.S. unemployment rate sank to a 14-month low of 5.7 percent in December, even as non-farm payrolls showed virtually no growth, the Labor Department reported Friday.

Non-farm payrolls increased by 1,000 in December, far below the 136,000 expected by Wall Street economists and the 181,000 expected by Wall Street traders. The jobless rate was expected to remain at 5.9 percent.

Job growth in the previous four months was revised lower by a total of 66,000. Over the past five months, payrolls have increased by 278,000, according to the survey of some 300,000 business establishments.

The separate household survey showed employment fell by 54,000 in December to 138.5 million. Unemployment fell by 255,000 to 8.4 million, the lowest since October 2002. The labor force decreased by 309,000.

The 0.2 percentage point drop in the jobless rate occurred because fewer people were looking for work, the Labor Department said. More than 300,000 people gave up their search for jobs and dropped out of the pool of available workers.

"The (unemployment) rate is going down, but it is going down for the wrong reasons," said Bill Cheney, chief economist at John Hancock Financial Services "That doesn't make you feel really good about the state of the jobs market."

The report was "shockingly weak," added Sherry Cooper, chief economist at BMO Nesbitt Burns. "It is back to the drawing board for those who believed the economy was blasting into 2004 at full speed."

In Washington, President Bush took a positive approach.

"Unemployment dropped today to 5.7 percent. That's not good enough. We want more people still working," the president said. "But nevertheless, it is a positive sign that the economy is getting better."

The Democrats had a different view.

"Rather than focusing on putting a person on the moon, I think the Bush administration should focus on putting people back to work," said Rep. Rahm Emanuel, D-Ill., a former Clinton White House aide, citing Mr. Bush's planned announcement next week of goals of sending Americans to Mars and establishing a permanent human presence on the moon.

The weak labor market is holding down pay increases. Average hourly earnings rose 0.2 percent to $15.50. Over the past year, earnings are up 2 percent, the lowest year-over-year gain since 1987.

Poor weather during the survey week may have depressed the workweek. The average workweek dropped by 12 minutes to 33.7 hours, while hours in manufacturing fell by 6 minutes to 40.7 hours despite a 6-minute increase in overtime to 4.6 hours.

Total hours worked in the economy fell 0.6 percent.

The report is likely to reassure Federal Reserve policy-makers that interest rates can remain very low for a while longer. Fed Gov. Ben Bernanke said last weekend that monetary policy should remain easy as long as labor markets are weak, productivity is strong and inflation is low.

The Federal Open Market Committee meets in a two-day session at the end of the month to plot out its economic forecast for the rest of the year.

Hiring weakened in December after job gains of 43,000 in November and 100,000 in October. In December, 50.4 percent of industries were hiring, down from 54.3 percent in November.

Goods-producing industries cut 12,000 jobs, including 26,000 in manufacturing. Hopes had risen among economists that the long drought of hiring in the factory sector might finally be ending after the employment index of the Institute for Supply Management index hit a three-year high.

Services-producing industries added 13,000 jobs. Retail jobs fell by 38,000, as cautious retailers kept staffs lean heading into the holiday season. Fewer hires in November and December will likely mean fewer layoffs than expected in January, which could boost the seasonally adjusted data.

Professional and business services added 45,000 jobs, including 30,000 temporary help workers. Health services added 14,000 jobs.

The average length of unemployment fell to 19.6 weeks in December from 20 weeks in November. Of the 8.4 million counted as unemployed, 1.9 million or 22.3 percent have been out of work longer than six months.

Weak holiday hiring by retailers was to blame for holding back job gains. Employment in the nation's stores, malls and even gas stations dropped by 38,000 last month, the report said, and manufacturing continued a 41-month slide by losing 26,000 jobs.

For sustained job growth, economists are looking for monthly payroll gains of 200,000 to 300,000 a mark the economy is far from reaching. December marked the fifth consecutive month of payroll gains, however slight.

Other areas of the economy are surging, while the jobs market has been a weak link in the recovery. To remain competitive in the global economy and out of concern that economic improvements wouldn't last, companies have been hesitant to take on added costs of hiring new full-time workers.

Instead, they have been working their employees longer and harder. Hence, the productivity of American workers has been at high levels in recent months.

The painfully slow employment growth has been making life difficult for job seekers.

Since President Bush took office, the economy has lost 2.3 million jobs, a statistic that Democrats hope to use against the Bush as he seeks re-election. The Bush administration contends that stronger economic growth helped by the president's three tax cuts will eventually lead to more meaningful job creation on a sustained basis.