January 10, 2014

Payrolls Rise Less Than Forecast; Jobless Rate Drops to 6.7%

December job growth likely muted by weather as unemployment rate falls to lowest since October 2008

(Photo: AP) (Photo: AP)

Jan. 10 (Bloomberg) -- Payrolls increased in December at the slowest pace in almost three years, indicating a pause in the recent strength of the U.S. labor market that may partly reflect the effects of bad weather.

The 74,000 gain in payrolls, less than the most pessimistic projection in a Bloomberg survey, followed a revised 241,000 advance the prior month, Labor Department figures showed today in Washington. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.

“It’s a reminder that the improvement is not going to be a straight line,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. While “the weather probably did play a big role,” he said, “it still looks pretty soft.”

Employers may be awaiting further evidence that the economy is accelerating before they step up the pace of hiring. Treasuries rose as the report eased concern the Federal Reserve will accelerate the pace of reductions in asset purchases.

The 10-year Treasury yield fell eight basis points to 2.88 percent at 10:20 a.m. in New York. The Standard & Poor’s 500 Index decreased 0.1 percent to 1,836.7.

The median forecast of 90 economists in the Bloomberg survey called for an increase of 197,000 jobs in December. Bloomberg survey estimates for December ranged from gains of 100,000 to 250,000.

Prior Months

Revisions to prior reports added a total of 38,000 jobs to overall payrolls in the previous two months. Employment increased 2.19 million last year, little changed from 2012.

The unemployment rate for December was forecast to hold at 7 percent. The jobless rate averaged 7.4 percent in 2013, the lowest in five years.

The Labor Department’s household survey showed more people were leaving the labor force. The so-called participation rate decreased to 62.8 percent, matching October as the lowest since 1978.

The decline in the jobless rate poses a communications challenge for the Fed, which has pledged to hold the main interest rate near zero “well past” the time that the unemployment rate declines below 6.5 percent.

“The Fed is really going to have to rethink maintaining a 6.5 percent threshold,” said said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Illinois.

‘Well Past’

“If their intention is to prolong the period of zero interest rates as long as feasible, then it was good that they put that ‘well past’ language in their previous statement.”

Policy makers in December decided to cut monthly bond purchases to $75 billion starting this month from $85 billion, citing improvement in the labor market.

Among those having trouble finding work is Caroline Hogge, 48, who has been looking since July 2012, when she left a procurement job at Warner Bros. in California. She moved back to her parents’ home in Tennessee and has applied for jobs as far afield as New Hampshire and Indiana.

“I go in for the interview, and then have feedback saying that ‘oh, they loved you, but you were overqualified,” said Hogge, who has a maser’s degree in history from Indiana University.

Poor weather may have played a role in depressing payrolls, especially in industries such as construction. The figures based on the government’s survey of households showed 273,000 Americans weren’t at work because of weather during the survey week, which last month included Dec. 5, the most for any December since 1977, the Labor Department said.

Coldest December

Last month was the coldest December since 2009, and snowfall was 21 percent above normal, according to weather-data provider Planalytics Inc.

Bad weather can affect the payroll count if employees didn’t receive compensation for any part of the pay period that included the 12th of month.

Employment in health care and social assistance decreased 1,000 in December, the first decline since July 2003. Payrolls also fell in construction, transportation and warehousing, government and in the motion picture industry.

Private employment, which excludes government agencies, rose by 87,000 in December after a 226,000 gain the prior month. The Bloomberg survey median called for a 200,000 advance.

Auto Jobs

Automakers, coming off their best sales year since 2007, are expanding staff. Dearborn, Michigan-based Ford Motor Co., the second-largest U.S. automaker, plans to add 5,000 jobs in the U.S. as it introduces 16 new vehicles in North America this year.

Southwest Airlines Co., which last hired flight attendants from outside the company in 2011, received applications at a rate of 80 a minute, amassing 10,000 resumes for 750 openings. Chief Executive Officer Gary Kelly, in a weekly recorded message in December, said it was “like opening up the floodgates.”

A rebound in manufacturing in the second half of 2013 has coincided with a recent pickup in hiring. Factory payrolls increased by 9,000 in December following a 31,000 advance in the previous month. Economists had projected a 15,000 gain.

The Institute for Supply Management’s factory index, released on Jan. 2, showed that manufacturing grew in December at the second-fastest pace in more than two years, with a gauge of employment advancing to its highest level since June 2011.

Hourly Earnings

Average hourly earnings rose by 0.1 percent to $24.17 in December from the prior month and increased 1.8 percent over the past 12 months.

The average work week for all workers fell six minutes to 34.4 hours.

Some companies are trimming their workforce. Palo Alto, California-based Hewlett-Packard Co. plans to eliminate 5,000 positions in addition to the 29,000 already scheduled through fiscal 2014, the technology company reported in an annual filing.

Macy’s Inc., the second-largest U.S. department-store company, this week said it will eliminate about 2,500 to cut costs as it closes some stores. The retailer said its workforce will remain at about 175,000 employees as it adds staff in other parts of the company.

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