Weak jobs report puzzles economists

WASHINGTON — It came as a shock: U.S. employers added just 74,000 jobs in December, far fewer than anyone expected. This from an economy that had been adding nearly three times as many for four straight months — a key reason the Federal Reserve decided last month to slow its economic stimulus.

So what happened in December? Economists struggled for explanations: Unusually cold weather. A statistical quirk. A temporary halt in steady job growth.

Blurring the picture, a wave of Americans stopped looking for work, meaning they were no longer counted as unemployed. Their exodus cut the unemployment rate from 7 percent to 6.7 percent — its lowest point in more than five years.

Friday’s weak report from the Labor Department was particularly surprising because it followed a flurry of data that had pointed to a robust economy: U.S. companies are selling record levels of goods overseas. Americans are spending more on big purchases like cars and appliances. Layoffs have dwindled. Consumer confidence is up and debt levels are down. Builders broke ground in November on the most new homes in five years.

“The disappointing jobs report flies in the face of most recent economic data, which are pointing to a pretty strong fourth quarter,” said Sal Guatieri, an economist at BMO Capital Markets.

It’s unclear whether the sharp hiring slowdown might lead the Federal Reserve to rethink its plan to slow its stimulus efforts. The Fed decided last month to pare its monthly bond purchases, which have been designed to lower interest rates to spur borrowing and spending.

Janet Yellen, who will take over as Fed chairman next month, “is probably scratching her head looking at the report,” said Sun Wong Sohn, an economics professor at the University of California’s Smith Business School.

Certainly many economists were. Some predicted that the job gain would be revised up in the coming months. The government adjusts each month’s jobs figure in the following two months as more companies respond to its survey.

Few analysts saw the sharp slowdown as the beginning of a much weaker trend.

“There is a good possibility this is just a one-shot deal that could either get revised away or made up for in next month’s release,” Scott Anderson, chief economist at Bank of the West, said in a note to clients.

Cold weather affected the report in several ways. Construction companies, which stop work during bad weather, cut 16,000 jobs, the most in 20 months. And the average workweek dipped as more people worked part time. An unusually large number of people missed work in December because of the weather, the government’s surveys found.

Michael Hanson, an economist at Bank of America Merrill Lynch, estimated that all told, the cold weather lowered hiring by about 75,000 jobs.

Several economists also highlighted statistical quirks in the report that they say are unlikely to be repeated. Mark Vitner of Wells Fargo noted that several industries reported unusually steep job losses. Accounting and bookkeeping services, for example, lost 24,700 jobs, the most in nearly 11 years.

And performing arts and spectator sports cut 11,600, the most in 21/2 years. The movie industry shed 13,700 jobs.

“We should expect to see at least one fluky employment report each year,” Vitner said. “December’s … was likely that report.”

As surprising as the weak job growth was the stream of people who stopped looking for jobs. The proportion of people either working or looking for work fell to 62.8 percent, matching a nearly 36-year low.

Last month’s expiration of extended benefits for 1.3 million long-term unemployed could accelerate that trend if many of them stop looking for work. Beneficiaries had been required to look for work to receive unemployment checks. The likely increase in people who no longer are looking for work could cause the unemployment rate to fall by up to a quarter-percentage point early this year, economists say.

The Obama administration and Democrats in Congress are pushing to extend the benefits for three more months. It’s unclear if they will succeed.

Among industries in December, health care cut 6,000 positions, that sector’s first monthly job cut in 10 years. If that became a trend, it could raise further questions about how effectively President Barack Obama’s health care program will be carried out.

Transportation and warehousing cut some jobs, suggesting that shippers hired fewer workers for the holidays. Governments cut 13,000 positions.

Despite December’s sharp slowdown, monthly job gains averaged 182,000 last year, nearly matching the average monthly gains for the previous two years.

One bright spot was manufacturing. Factories added 9,000 positions, the fifth straight gain. Still, that’s down from 31,000 in November. Retailers added 55,000 jobs.

Analysts estimate that the economy expanded at a healthy annual rate of 3 percent to 3.5 percent in the October-December quarter. That’s up from earlier forecasts of a 2 percent rate or less. It would follow a strong 4.1 percent growth rate reported for the July-September quarter.

More in Herald Business Journal

An Alaska Airlines Embraer 175. The carrier plans to use this model on routes to and from Paine Field in Everett. (Alaska Airlines)
Alaska Airlines hopes to be a decent neighbor in Everett

Diana Birkett Rakow shared aspects of the company’s philosophy as keynote at an Economic Alliance event.

Aerospace supplier MTorres is taking off in Everett

Spanish company has received nearly $40 million in new projects since opening near Boeing in Everett.

US manufacturers have produced 150 million guns since 1986

The vast majority of all U.S.-produced firearms were sold domestically.

Safe saves Everett Office Furniture’s future after fire

The business was able to reopen because vital paperwork was preserved.

Investor Warren Buffett says good deals are tough to find

Succeeding in the market requires the discipline to act sensibly when markets do crazy things.

More than 60 Boeing 737s per month: Can suppliers keep up?

There was lots of talk this week about the prudence and pressures of soaring production rates.

Developer proposes an 18-story building in Lynnwood

It would be the second-tallest in the county and include apartments with retail space.

Snohomish County business licenses

PLEASE NOTE: Business license information is obtained monthly from the Washington Secretary… Continue reading

New Everett mayor speaks out about business in city, region

Q&A: Cassie Franklin on what can be done to get Boeing to build the 797 here and attract new industries.

Most Read