U.S. Job Growth Falls Well Short Of Estimates Amid Bad Weather

(RTTNews) - Partly reflecting the impact of severe winter weather, the Labor Department released a report on Friday showing that employment in the U.S. increased by much less than expected in the month of December.

The report said non-farm payroll employment edged up by 74,000 jobs in December compared to economist estimates for an increase of about 200,000 jobs.

The job growth in December reflects a substantial slowdown from the upwardly revised increase of 241,000 jobs in November.

At the same time, the Labor Department said the U.S. unemployment rate dropped to 6.7 percent in December from 7.0 percent in November. The drop pulled the unemployment rate down to its lowest level since October of 2008.

While the drop in the unemployment rate came as a surprise to economists, the decline was largely due to a decrease in the size of the labor force as some unemployed people gave up looking for work.

Bad weather during the month likely contributed to the weaker than expected job growth, as the Labor Department said 273,000 people were not able to work because of the weather, the most since 1977.

Paul Ashworth, Chief U.S. Economist at Capital Economics, noted that the number of people not able to work because of the weather is well above the 166,000 long-term average for the final month of the year.

"That doesn't mean we can mechanically translate that into an 110,000 hit to payrolls, however, because the payroll survey still counts workers as employed as long as they were paid for one day in the sample period, regardless of whether they physically turned up," Ashworth said. "Nevertheless, it is normally a pretty good indication."

A loss of 16,000 jobs in the construction sector may be further evidence of the impact of the weather along with a 0.1 hour drop in the average workweek.

Meanwhile, the Labor Department pointed to notable job growth in the retail sector, which added 55,300 jobs in the final month of the holiday shopping season.

Employment in the temporary help services industry also showed a significant increase, climbing by 40,400 jobs.

On the other hand, government employment fell by 13,000 jobs and the information sector cut 12,000 jobs. Employment in the health care and social assistance sector also edged down by 1,000 jobs after jumping by 35,400 jobs in the previous month.

"All things considered, the well below consensus gain in payrolls will inevitably lead to speculation that the Fed will leave its monthly asset purchases unchanged at $75 billion per month at the upcoming meeting in late January," Ashworth said. "However, we still think the Fed will push through a further $10 billion reduction."

"The weather likely played a role in December's weakness and, at 6.7%, the unemployment rate is closing in on the 6.5% threshold that was originally intended to signal that the Fed would at least begin to consider raising the fed funds rate," he added.

The Labor Department said average hourly employee earnings edged up by 2 cents to $24.17 in December. Compared to the same month a year ago, average hourly earnings are up by 1.8 percent.