After several consecutive months of job gains near or above 200,000, the streak came to an abrupt halt with the December jobs report - reminding everyone how fragile our economy still is.
Payroll growth last month slowed to the slowest pace since January 2011. Employers added a skimpy 74,000 jobs in December, Friday's Labor Department report revealed.
That was well below even the most cautious expectations.
Surveys showed economists expected gains of 197,000 to 205,000, with the unemployment rate remaining at 7%. Many analysts raised projections after Wednesday's report from private payroll processing firm ADP showed businesses added 238,000 jobs in December, the most in 13 months.
The lackluster job creation wasn't the only "surprise" in the December jobs report. The unemployment rate unexpectedly fell to 6.7% from 7%, marking the lowest level since October 2008.
Digging into the reasons behind the drop shows just how troubling this situation is. That's because the decline was due to some 347,000 discouraged Americans simply dropping out of the work force.
"Despite the good headline news (the dip in the unemployment rate), the U.S. economy is still experiencing problems stemming from the 2008 mortgage crisis," Steven Pressman, Professor of Economics at Monmouth University in Long Branch, NJ, told Money Morning. "A good part of the unemployment rate decline was due to people giving up and not looking for work. These people don't get counted as unemployed because they're not seeking work. The decline in the employment population ratio to 62.8%, the lowest rate since 1978, reinforces this. A number like this can only be regarded as disturbing."
Disturbing indeed. The number of people not in the workforce swelled by 525,000 in December to 91.808 million. That's a huge exodus of people leaving the employment arena. And the figure dwarfs the meager number of jobs created.
More Disturbing December Jobs Report Details
Other labor market indicators highlighted in the December report are also bothersome:
- The average workweek dipped to 34.4 hours from 34.5 hours, a sign of weakness in the overall economy (employers give existing workers more hours before adding new employees).
- Average hourly earnings rose a paltry two cents to $24.17.
- Federal, state, and local government headcount fell by 13,000 jobs in December after rising 15,000 in November.
- Employment in healthcare and social assistance decreased by 6,000. That compares with monthly gains of 17,000 in 2013 and 27,000 in 2012. Moreover, it marked the first decline since July 2003.
- Construction employment fell 16,000, the first decline since May and a sharp reversal from 2013's monthly average of a gain of 10,000.
- Declines were also seen in the transportation, information technology, warehousing, and entertainment sectors.
- The scant job gains were peppered across the lower-paying categories of retail, fast food, and general merchandising. This increasing trend highlights a troubling shift. According to a 2013 Center for College Affordability and Productivity report, the number of college grads taking unskilled jobs has ballooned since 2006. The United States now has more college graduates working in retail than soldiers in the U.S. Army.
- The wider measure of joblessness, the underemployment rate - which includes part-time employees who prefer full-time jobs, those who have given up looking for work, and the unemployed - remained stubbornly elevated at 13.1% in December.
- The latest numbers mean the U.S. economy gained an average 182,000 jobs a month last year, less than 2012's average. For all of 2013, employers added 2.18 million jobs, a tad fewer than 2012's total of 2.19 million.
Weak December Jobs Report to Prompt Fed to Pause
December's anemic jobs growth will play into the Federal Reserve's decision on how to unwind its bond-buying program, recently reduced to $75 billion per month.
"In terms of policy implications, the Federal Reserve is going to have to think twice about further tapering," Pressman said. "They are going to have to think twice about their 6.5% unemployment rate target for thinking about the end of tapering. We are nearly at this point now, but all other numbers point to the fact that the labor market is still much too weak."
In December, the central bank tried - and failed - to make its intentions clear: "If the incoming data broadly support the Committee's outlook for employment and inflation, we will likely reduce the pace of securities purchases in further measured steps at future meeting. Of course, continued progress is by no means certain. Consequently, future adjustments to the pace of asset purchases will be deliberate and dependent on incoming information."
So much for future guidance.
We will get more, or less, news at the Fed's Jan. 28-29 meeting.
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Jobs Report: Economy Added 74,000 Jobs in December
Payrolls Rise Less Than Forecast: U.S. Jobless Rate at 6.7%
The New York Times:
U.S. Economy Adds Only 74,000 Jobs in December