Washington, DC, Jan. 9--The unemployment rate fell in December to its lowest level in 14 months. But payroll growth was miniscule, suggesting that, despite the drop in the unemployment rate, some weakness persists in the labor market.
The unemployment rate fell by two-tenths of a percentage point to 5.7%, the lowest level since October 2002, the Labor Department reported Friday. Nonfarm business payrolls grew by only 1,000 jobs. The department also cut its earlier estimates of job growth for October and November, saying the job count for those months was 51,000 less than initially thought.
December marked the fifth consecutive month of payroll gains but the actual increase was far from the 150,000 economists had projected, according to a survey by Dow Jones Newswires and CNBC. Economists surveyed expected the unemployment rate to hold steady at 5.9%.
"We don't have evidence of solid job creation, and that must be factored into economic and financial projections for the rest of the year," said William Sullivan, a senior economist with Morgan Stanley, in an interview on CNBC Friday.
Since June, the unemployment rate has fallen by more than half a percent, while the number of unemployed has fallen 847,000, the Labor Department said.
But the decrease in the unemployment rate was largely attributed to the fact that fewer people were looking for work in December, the department said. More than 300,000 people gave up their search for jobs and dropped out of the pool of available workers, according to the Bureau of Labor Statistics.
Weak holiday hiring by retailers was, in part, to blame for holding back job gains. Employment in the nation's stores, malls and even gas stations dropped 38,000 last month, the report said. Manufacturing continued a 41-month slide, losing 26,000 jobs.
Those losses offset gains in the professional- and business-services industry, which added 45,000 jobs. The majority of that gain came from the addition of 30,000 temporary-help services jobs during the month. The construction industry added 14,000 jobs.
The economy expanded 8.2% in the third quarter, the fastest pace in 20 years. Federal Reserve policy makers, as a result, have grown increasingly confident the economic recovery won't fizzle as it has several times since 2001. However, they are quick to say that they are in no hurry to raise interest rates anytime soon, citing the sluggish pace of job creation among its concerns. Policy makers say it may take a year or more for the labor market to fully recover.
In a speech last weekend, that seems even more relevant in light of the employment report, Fed Governor Ben S. Bernanke said: "The tendency of recent job losers to leave the labor force likely masks some of the effects of job cuts on the unemployment rate, so that the current measured level of unemployment may understate the extent of job loss or the difficulty of finding new work."
Many economists remained upbeat on the outlook for the labor market but noted that the stagnation in payroll growth will likely delay any action by the Fed on interest rates.
"Over the next few months, all the signs are that payroll employment will rise dramatically," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a note to clients. But this report "does not help the cause of a May tightening" of the Fed's monetary policy.
Steven Wood, chief market economist at Insight Economics agrees. "Even the positive signal from additional [temporary-worker] hiring is offset by a shorter workweek. The [Fed] will not begin to raise interest rates until substantial job creation returns regardless of how strong economic growth is."
Over the past three years, employers have cut more than three million private-sector jobs. To replace those jobs within a year and keep up with population growth economists estimate businesses would need to create about 400,000 jobs a month.
