U.S. economy adds 74,000 jobs, rate falls to 6.7 percent

1:27 PM, Jan 10, 2014   |    comments
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(USA TODAY) -- Employers added 74,000 jobs in December as payroll growth slowed significantly after several months of solid gains.

That's the smallest number of job gains since January 2011. The unemployment rate fell from 7% to 6.7%, lowest since October 2008, the Labor Department said Friday.

The decline was mostly due to a drop of 347,000 in the labor force, or the number of Americans working or looking for work.

The median forecast of 37 economists surveyed by USA TODAY was for a gain of 205,000 jobs last month. Nearly a third raised their projections after payroll processor ADP's survey this week showed businesses adding 238,000 jobs in December, the most in 13 months. Other surveys of economists pointed to gains of 197,000 to 200,000.

The Labor Department's report showed businesses added 87,000 jobs. Federal, state and local governments cut 13,000.

Job gains for November were revised to 241,000 from 203,000.

The latest numbers mean the U.S. economy gained an average 182,000 jobs a month last year, the same as in 2012, at least temporarily undermining the view that the labor market has been picking up steam lately after four years of tepid growth. For the year, employers added 2.18 million jobs, slightly fewer than 2012's total of 2.19 million.

However, economists warn last year's totals could turn out to be different after the Labor Department completes monthly and annual revisions to its data in coming months.

Paul Ashworth of Capital Economics says severe winter was the main culprit behind the disappointing job gains. In the Labor Department's survey of households, 273,000 people said they were not at work for some part of the month because of the weather, well above the 166,000 long-term average, Ashworth notes. A drop of 16,000 jobs in construction payrolls supports that view.

"The 74,000 (employment increase) way understates how the labor market really is," says Allen Sinai, chief economist of Decision Economics.

Still, noting the sharp labor force decline, Sinai says, "It's still a weak report." He partly attributes the small number of job additions and the drop in the labor force to ongoing mismatches between open positions in technology and other fast-growing fields, and the skills of unemployed workers.

The low payroll gains increase the risk that the Federal Reserve could leave its monthly bond purchases -- which are intended to hold down interest rates and spur growth --unchanged at $75 billion this month after starting to taper the program in December. The Fed took that step amid signs that the economy was showing significant improvement. But Ashworth says the economy and job market are still trending upward and he expects the Fed to reduce the purchases by another $10 billion at its January 28-29 meeting.

INTERACTIVE: Job growth forecasts

Some other labor market indicators were mixed in December. The average workweek fell to 34.4 hours from 34.5 hours. Employers give existing workers more hours before adding new employees. Average hourly earnings rose two cents to $24.17.

A possible bright spot is that the number of temporary employees increased by a solid 40,000. Companies typically bring on contingent workers before adding to permanent staff.

A wider measure of joblessness called the underemployment rate - which includes part-time employees who prefer full-time jobs and those who've given up looking for work, as well as the unemployed - was unchanged at 13.1%.

Retailers led job gains with 55,000. Professional and business services added 19,000 and manufacturers, 9,000.

But payroll growth was weak across the board, with education and health services, a reliable source of job growth even through the recession, adding no jobs.

The economy and labor market have shown signs of ratcheting higher recently after 4 ½ years of mostly sluggish growth. Net job gains were over 200,000 from August through November, vs. 180,000 the first seven months of the year.

Manufacturing, the housing recovery and consumer spending all have picked up recently. A recent budget deal in Congress that tempers federal spending cuts has eased uncertainty among corporations, many of which are flush with cash, igniting plans for more capital spending. And a falling trade deficit has prompted many analysts to raise their estimates of economic growth last quarter to more than 3% at an annual rate.

Meanwhile, household wealth is near record levels and consumers have shed much of the debt that hampered their spending after the Great Recession.

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