For the U.S. economy, it is the equivalent of getting a lump of coal in your Christmas stocking.
Employers added only 74,000 nonfarm jobs in December, the U.S. Labor Department said Friday, the fewest in three years. That is down from 241,000 in November and well below consensus estimates of 197,000. The surprisingly low number raises questions about the Federal Reserve's
recent move to start scaling back its $75-billion-a-month bond purchase
program aimed at boosting economic growth.
Despite the plunge in job-creation, the nation's unemployment rate declined to 6.7 percent, from 7 percent, as many people stopped looking for work. The share of working-age adults who are employed or are looking for one fell to 62.8 percent, the lowest in more than three decades.The weak job growth suggests that the cold snap that swept across much of the U.S. in December likely depressed hiring. Jobs in the construction industry -- where work can fluctuate significantly depending on the weather -- fell by 16,000, the most in nearly two years. That means job growth could rebound in future months.
"We suspect that the unexpectedly weak 74,000 increase in nonfarm payrolls in December is largely because of the unseasonably severe winter weather last month," said Paul Asworth, chief U.S. economist with Capital Economics, in a note to clients.
Manufacturers added jobs for a fifth straight month, while payrolls also grew in the retail and professional and businesses services sectors. Government continued to shed jobs, mostly at the state and local level.
The paltry job growth in December took many experts by surprise because it is at odds with other signals suggesting that the labor market is picking up speed. After seeing subdued growth for most of 2013, job-creation picked up in the second half of the year, with payroll gains rising by an average of more than 200,00 jobs between August and November. Economists have also recently lifted their forecasts for fourth-quarter economic growth, citing stronger exports, and many forecasters have expressed optimism that the labor market is strengthening.
Gus Faucher, senior economist with PNC Financial Services Group, said the government's December employment report likely understates the rate of job-creation, and he predicted the numbers will be revised upward when the Labor Department refines today's initial estimate.
"When we get the revisions for next month, I think that what
we'll see is significant upward revisions in December job somewhere closer to 150,000 or 175,000," he said.
"Consumers have been amazingly resilient all through the
expansion," said Mark Luschini, chief investment strategist with broker-dealer Janney Montgomery Scott. "And now you have increasing confidence and good, but not great, average
economic growth over the course of 2013. That's helping to reinforce consumer
confidence because your neighbor who lost a job maybe has found one and those
who have a job feel better about keeping it."
In another positive development for the recovery, the recent federal budget deal
in Washington has raised hopes that lawmakers will avoid the kind of partisan clash that led to October's partial government shutdown and stunted economic growth.
Most economists and market watchers think that the Fed will continue gradually scaling back its monthly bond purchases over the course of the year. But Paul Edelstein, director of financial economics at IHS Global Insights, believes the anemic pace of job growth last month could convince policymakers to slow the pace of tapering for a month to see if the weakness in the labor market persists.
Indeed, as the latest job figures underscore, the labor market is far from being healed from the deep wounds it suffered during the recession that followed the 2008 financial crisis. Job growth last year wasn't much stronger than in 2011, when monthly payroll gains averaged 175,000.
Even if employers add jobs at a clip of roughly 200,000 per month, it would still take another five years for employment conditions in the U.S. to return to where they were before the housing crash, according to the Economic Policy Institute.
"Six years since the start of the Great Recession and four-and-a-half years since its official end, the U.S. labor market remains extraordinarily weak, with nearly 8 million jobs needed just to restore the labor market to pre-recession health," wrote Heidi Shierholz, an economist with the liberal-leaning think-tank, in a report this week.
It is also unclear what longer-term impact the Fed's move to dial down stimulus will have on interest rates. Although the central bank's tapering announcement last month has not caused a spike in interest rates, as some had feared, mortgage, credit card and other lending rates have crept up. If demand weakens, that could stall economic growth and discourage hiring.