WASHINGTON — Disappointing employment data Friday illustrate the challenge ahead for the U.S. economy: Growth is picking up but isn't yet sparking new hiring, and that could keep consumer sentiment in the dumps and retard the recovery.
Employers cut 85,000 non-farm payroll jobs last month, the Labor Department reported, far more than the 8,000 to 10,000 losses that economists had expected.
However, the unemployment rate held steady at 10 percent in December, and statisticians revised November's job numbers to show positive growth. After first reporting that employers had shed 11,000 jobs in November, the Bureau of Labor Statistics said Friday that they'd added 4,000 jobs that month. That's the first job growth since December 2007, the month that the deep recession began. Total job losses since then have exceeded 7.2 million.
December's job numbers dashed hopes that a return to significant hiring is near.
"The job market took a step back in December. Businesses are curtailing their layoffs, but they have yet to begin hiring, as they struggle to get credit and lack the confidence to expand their operations," said Mark Zandi, the chief economist for Moody's Economy.com, a forecaster in West Chester, Pa. "The decline in employment was a bit overstated, as cold December weather weighed on construction and leisure and hospitality jobs."
Many economists recently revised their growth projections for the last three months of 2009 upward to around a 4 percent annual rate, and most think that the U.S. economy is rebounding. The latest jobs data suggested as much, sustaining the recent trend of moderating losses in key sectors.
Manufacturers shed only 27,000 jobs in December. Professional and business services added 50,000 jobs, on top of 86,000 in November. That points to a clear rebound in white-collar employment. Temporary employment also increased in December, by 47,000 jobs, sustaining a growth trend that began in July. Traditionally, employers offer temp jobs before they hire full time, to delay incurring all the costs associated with employee benefits.
Still, the broader service sector, vital to an economy that's no longer driven primarily by manufacturing, continues to disappoint. Harvard University economist Kenneth Rogoff said that until the service sector made a firm recovery, the unemployment rate would remain high.
"I don’t see it just racing down to 5 percent in two years," he said. He projects sluggishness well into next year. "I suspect that even if we have a boost for a while, we’ll end up stalling."
Christina Romer, the head of the White House Council of Economic Advisers, emphasized the positive in Friday's decidedly mixed report.
"Revised data now show that employment increased 4,000 in November. This is obviously welcome news and the first employment increase in 23 months. Compared with the unexpectedly good report for November, December's job loss is a slight setback," she said in a statement.
What happens in the job market weighs heavily on consumer sentiment. Various measures continue to show consumers lying low, but Bernard Baumohl, the chief global economist for the Economic Outlook Group, an advisory firm, saw reason for hope.
"There is no question the employment outlook is improving. So is household income, which is linked to employment. Personal income has risen five months in a row to the highest level in more than a year," he wrote in a note to investors. "Wages and salaries have climbed for eight consecutive months, with the latest figure rising to the highest of any month last year."
However, Friday's report also pointed to continued structural deterioration in the U.S. labor market. Four in 10 unemployed Americans — 6.1 million of the 15.3 million jobless workers — have been without jobs for 27 weeks or more, the BLS said, adding that the number of people exiting the work force also increased in December.
"The real news in these data is the 1.9 million erosion of the labor force — those seeking work or working — since May, with a 661,000 decline last month alone," said Lawrence Mishel, the president of the Economic Policy Institute, a liberal policy-research group. "Absent this flight from the labor market the unemployment rate would have risen substantially in December — up 0.4 percent — rather than held steady."
Mishel and Zandi fear that the unemployment rate could shoot up later in the year if growth heats up and workers who've given up seeking jobs begin looking again. That will result in monthly reports showing businesses adding significant numbers of jobs even as the unemployment rate ticks upward.
"If the labor force was growing close to its historical norm of closer to 1 percent, the unemployment rate would already be well over 11 percent. The job market is moving in the right direction … but it is improving painfully slowly," Zandi said.
The continuing trend of underemployment, part-time employment and discouraged people who want to work but can't underscores the tremendous challenge that the Obama administration faces. Even when job growth resumes, it will take a long time for the employment market to return to vitality.
President Barack Obama announced Friday the winners of $2.3 billion in tax credits for manufacturers of clean energy technologies, which are expected to create up to 17,000 manufacturing jobs.
"Building a robust clean-energy sector is how we will create the jobs of the future," Obama said.
Some analysts called for more vigorous action from Washington.
"An astounding 26.5 million Americans were underemployed in December, up from close to 12 million before the Great Recession began. Even under the best of circumstances it will take a solid five years to re-employ all these additional underemployed workers," Zandi said. "Policymakers' priority for 2010 should be to provide a catalyst to restart hiring by private businesses."
Democrats in Congress hope to enact a new $174 billion government stimulus spending program, but they face widespread opposition because government debt is soaring.
DECEMBER EMPLOYMENT BY SECTOR:
— Construction, fell by 53,000.
— Manufacturing, down 27,000.
— Leisure and hospitality, down 25,000.
— Government, down 21,000.
— Retail, off 10,000.
— Services, down 4,000.
— Health care and education, plus 35,000.
— Professional and business services, plus 50,000.
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