The U.S. economy added only 74,000 jobs in December, well shy of estimates and dinging hopes of a widespread jobs recovery.
The headline unemployment rate fell to 6.7%, the lowest level in five years. But the rate fell primarily because hundreds of thousands of people left the workforce unable to find jobs, according to figures released Friday by the U.S. Department of Labor.
With 347,000 dropping out of the workforce, the labor force participation rate, which measures people actively looking for work, fell to 62.8%, a four-decade low.
Economists had predicted 196,000 new jobs last month and that the unemployment rate would remain unchanged at 7%.
The November data was revised upwards from a gain of 203,000 jobs to 241,000, meaning employment gains in October and November were 38,000 higher than previously reported.
Analysts were hard pressed to explain why the December numbers fell so short of expectations.
“We stop short of making larger observations based on this number. The economy, based on any number of other indicators, has been picking up steam of late which makes today’s number….curious,” said Dan Greenhaus, chief global strategist at research firm BTIG.
Strong October and November jobs data, combined with a string of recent positive economic reports, led analysts to predict – incorrectly — that the positive trend would continue into December.
Adding to that optimistic forecast, the ADP National Employment report released on Wednesday said 238,000 non-farm private sector jobs were added last month, the largest gain since November 2012. The ADP numbers are not always a reliable indicator for the government statistics, however.
Lance Roberts, chief executive at STA Wealth Management, noted ahead of the report’s release that December is traditionally a strong month for job creation, aided by seasonal hires in the retail industry to support the holiday shopping season.
But that wasn’t the case last month.
There are additional concerns, according to Roberts. Notably that many of those seasonal workers hired in December will be laid off after the holiday, which could take additional air out of the job markets’ sails.
“I think the January report will be much more telling in terms of what’s really going on in the labor markets,” Roberts said.
A strengthening jobs market late last year prompted the Federal Reserve last month to begin scaling back its easy-money policies initiated five years ago in the wake of the 2008 financial crisis. Specifically, the Fed announced it would reduce its monthly bond purchases, a program known as quantitative easing, by $10 billion each month beginning in January.
Fed policy makers have vowed to take a cautious approach to so-called tapering, fearing that dialing back its bond purchases too quickly could backfire if the economy shows signs of stalling again. The Fed has said it will continue to reduce its monthly bond purchases by $10 billion each month until the program expires later this year, but only if the economic data justify the reductions. It won’t be easy for the Fed to interpret Friday’s tepid jobs report.
The December numbers showed mostly weak growth or losses practically across-the-board.
Construction employment fell in December by 16,000 likely due to bad weather in many areas of the country.
Employment in retail trade rose by 55,000, as stores hired workers for the holiday season. Wholesale trade added 15,000 jobs with most of the job growth in electronic markets and agents and brokers.
Employment in professional and business services rose by 19,000, well below 2013’s monthly average of 53,000 Within that industry, temporary help services added 40,000 jobs, while employment in accounting and bookkeeping services fell by 25,000. Manufacturing employment continued to trend upward in December, adding 9,000 jobs.
Health care employment lost 6,000 positions, after gaining an average of 17,000 per month in 2013, compared with an average monthly gain of 27,000 in 2012, according to the Labor Department.
Employment in other major industries, including transportation and warehousing, financial activities, leisure and hospitality, and government, changed little in December.
Roberts noted that he’s concerned too many new jobs are part-time or temporary. “The only thing that really matters in terms of employment is fulltime jobs and we’re not creating enough of those,” he said.
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Original article courtesy of www.foxbusiness.com.