U.S. Economy Adds More Jobs Than Views in December

By Dunstan Prial Economic Indicators FOXBusiness

U.S. economy adds 252,000 jobs in December, unemployment rate falls

FBN's Peter Barnes breaks down the December jobs report.

The U.S. added 252,000 jobs in December, offering further evidence that labor markets are well on their way to a sustained recovery after years of fits and starts following the 2008 financial crisis.

Continue Reading Below

The job gains marked the 11th consecutive month in which the U.S. gained more than 200,000 jobs, a measuring stick economists have said would be necessary if the U.S. was to make significant gains in its employment landscape.

The unemployment rate fell to 5.6% from 5.8% in November, according to figures released Friday by the U.S. Labor Department. In addition, job creation figures for October and November were revised higher by a total of 50,000.

Economists had predicted 240,000 new jobs in December and that the unemployment rate would tick lower to 5.7%.

Analysts said the string of positive labor reports will undoubtedly be a factor in the Federal Reserve’s decision on the timing of interest rate hikes.

“The US labour market continued to boom at the end of last year, adding further fuel to expectations that the (Federal Reserve) will be the first major central bank to start tightening policy in 2015,” said Chris Williamson, chief economist at research firm Markit.

Continue Reading Below

Wages remained a problem, however, as average hourly earnings for all employees on private nonfarm payrolls fell by 5 cents to $24.57, following an increase of 6 cents in November, the Labor Department reported. Over the year, average hourly earnings have risen by just 1.7%, well below the 3% rate economists say is healthy.

And about 300,000 left the workforce in December, pushing the labor force participation rate slightly lower.

The December headline numbers were widely expected to be positive given the additional seasonal hiring in retail to fill jobs needed during the holiday shopping season.

The Fed has been studying labor market trends for months in an effort to determine the proper timing for raising interest rates, a move that would push borrowing costs higher and could potentially cause a drag on the economic recovery.

Williamson said economic data reports released over the next two months “will be crucial in determining whether the (Federal Reserve) will aim for mid-2015 or, as survey data indicate, rate rises could be delayed until later in the year if the economy shows signs of slowing.”

When rates move higher it will be more expensive for consumers and businesses to borrow money. The higher costs for borrowing could cut back on consumer spending and business expansion, which could negatively impact labor markets.

While labor markets appear to be healing based on the steady decline in the headline unemployment rate, other labor market indicators suggest a slower recovery for many U.S. workers.

For instance, average hourly wages have been essentially stagnant for months, a factor that has kept inflation running well below the Fed’s target rate of 2%. Wages have emerged as perhaps the key indicator being watched by economists to determine when the Fed might start raising interest rates.

During the past year, average hourly earnings have hovered well below the 3%-3.5% rate the Fed views as necessary to keep inflation at its desired 2% target rate.

The Fed has said it won’t start raising interest rates until it reaches its dual mandate of full employment and price stability. The central bank has defined the former as an unemployment rate in a range of 5.2%-5.6% and the latter as an annual inflation range of 1.7%-2%.

The unemployment rate has now dropped into that desired range, but the inflation target is trickier. Inflation isn’t likely to move higher until wages go up significantly, and that may not happen until late in 2015, according to most economists.

December job gains were broad-based across many sectors, according to the Labor Department numbers: construction added 48,000 jobs, well above the employment gains in recent months; employment in professional and business services rose by 52,000;  employment in food services and drinking places increased by 44,000.

What do you think?

Click the button below to comment on this article.