Just 74,000 New Jobs Created in December
By Dunstan Prial
Published January 09, 2014
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.
Economists had predicted 196,000 new jobs last month and that the rate would remain unchanged at 7%.
Analysts were hard pressed to explain why the number 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 expressed confidence that labor market growth will continue into 2014 and that the December report should add to that confidence. It’s uncertain what the disappointing December numbers will mean to the Fed’s tapering program, but it could slow tapering.
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.
In a report issued prior to the release of Friday’s surprisingly weak jobs report, Goldman Sachs (GS) analysts ticked off a laundry list of data suggesting that December’s report would be positive.
For instance, the Conference Board’s labor differential — the net percent of respondents in the consumer confidence survey reporting jobs plentiful vs. jobs hard to get — continued to rise in December, adding to two years of gains.
In addition, employment firm Challenger, Gray & Christmas said in its most recent layoff report that job cuts in December were the lowest in 13 years, falling 5.9% year-over-year.
Roberts added that he’s concerned too many new jobs are part-time or temporary. “The only thing that really matters in terms of employment is full time jobs and we’re not creating enough of those,” he said.