Economy adds 74,000 jobs, rate falls to 6.7%
A muddied employment report for December raised questions about the strength and direction of the nation's economy on Friday as employers added a disappointing 74,000 jobs, the fewest in three years.
The Department of Labor said the unemployment rate fell from 7 percent in November to 6.7 percent, the lowest level since October 2008. But the drop occurred mostly because more Americans stopped looking for jobs.
The government counts people as unemployed only if they are actively searching for work, and the proportion of people working or looking for work fell to 62.8 percent, matching a nearly 36-year low.
Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, said Friday's report appears contradictory, but “you can't ignore it.”
He and other economists said the cause may have been the weather or other factors, such as a later Thanksgiving or anomalies in some sectors, and job numbers must be averaged during the past two or three months. Cold weather may have slowed hiring: An example is construction companies, which cut 16,000 jobs, the biggest drop in 20 months.
“You have this contrary report: a 6.7 percent jobless rate appears to be a gain, but it was mostly because people dropped out of the work force and didn't get counted. Then you go to the payroll survey, which produced only 74,000 jobs, a third or a half of what was expected. That is a weak signal.”
Overall, the economy appeared to be improving during the final three months of the year, Hoffman said. “You created about as many jobs as you did for the full year, and there was hope we'd do better, but December doesn't verify that.”
But Hoffman said, “That doesn't change my point of view that the economy is getting better. We've had improvements in GDP, holiday sales and manufacturing. ... We're entering the year with momentum.”
The slowdown in hiring could cause the Federal Reserve to rethink its plan to slow its stimulus efforts. The Fed decided last month to cut back on its monthly bond purchases by $10 billion. It could delay further reductions until it sees evidence that December's weak numbers were temporary.
“Given the variability of weather, especially in winter, the downturn in December is not cause for alarm,” said Ken Simonson, chief economist at Associated General Contractors of America in Arlington, Va. “The data does show how uneven the recovery remains with residential construction doing very well, but the public sector remains weak and private nonresidential construction is mixed.”
Not only was the 74,000 jobs number far lower than expected, it was heavily concentrated in retail, which accounted for 55,300 new jobs. Some of the job losses posted in other sectors were clearly anomalies, said Dean Baker is an economist at the Center for Economic and Policy Research in Washington, D.C. For example, the accounting industry reportedly lost 24,700 jobs in December, while the motion picture industry lost 13,700. “These are erratic movements that will likely be partially reversed in future months,” Baker said.
Still, December's hiring is far below the average gain of 214,000 jobs a month in the preceding four months. But monthly gains averaged 182,000 last year, nearly matching the previous two years.
“This report should be viewed as a corrective to some of the excessive optimism in recent assessments of the economy,” said Baker. “Much of the apparent weakness in December job growth is a direct result of the stronger than expected growth seen in the prior two months.
“The economy is likely to continue to add jobs at a pace consistent with a slow decline in the unemployment rate,” Baker said. “However, the bigger factor pushing down unemployment is likely to be people leaving the labor force as their benefits expire.”
PNC's Hoffman said he agrees with calls for an extension of unemployment benefits, but only if Congress shows discipline in spending and “they can find spending cuts to pay for it.” If extended over the whole year, an extension is estimated to cost $20 billion to $25 billion. Such action would be a shift in priority, and “I think it is a high priority,” he said.
Many industries posted weaker gains or cut jobs. Health care cut 6,000 positions, the first cut in 10 years. That could raise questions about the impact of President Obama's health care reform. Transportation and warehousing cut a small number of jobs, suggesting shippers hired fewer workers for the holidays. Government cut 13,000.
One bright spot was manufacturing. Factories added 9,000 positions, the fifth straight gain. Still, that's down from 31,000 in November. Retailers added 55,000 jobs.
The Associated Press contributed to this report. John D. Oravecz is a staff writer for Trib Total Media.