Job growth below expectations in December

01/06/2006

Friday January 6, 11:32 AM EST
By Glenn Somerville

WASHINGTON (Reuters) - U.S. employers added a fewer-than-expected 108,000 new jobs in December but that followed a much stronger wave of hiring than previously thought in November, when rebuilding after hurricanes was getting under way, a government report on Friday showed.

The Labor Department said the unemployment rate fell to 4.9 percent from 5 percent in November. During the full year 2005, payrolls grew by nearly 2.2 million new jobs.

While the December total of new jobs came in well under forecasts for 200,000, it came with an upwardly revised 305,000 new jobs in November—the strongest hiring since April 2004—instead of 215,000 the department reported a month ago.

November hiring reflected a surge in construction hiring for rebuilding in the Gulf Coast region after hurricanes Katrina and Rita.

Analysts saw the December report as raising the odds that the Federal Reserve was on course for a relatively early end to interest-rate rises. The central bank has increased the federal funds rate 13 times since mid-2004 to 4.25 percent.

“The report is probably a shade on the weak side and it increases the chance that the Fed is more likely to stop raising rates at 4.75 percent at the middle of the year, rather than going higher,” said Cary Leahey, senior managing director at Decision Economics in New York.

EXPANSION PAYS OFF

Treasury Secretary John Snow, in New York as part of a series of appearances by administration officials—including President George W. Bush—to talk up the economy, said the jobs report was evidence the economy was expanding steadily.

“The economy is continuing to move forward, I think this is an indication of that. I’m confident we’re going to see a lot of good strong growth with a lot of job creation in ‘06,” Snow said on CNBC television.

Bush was scheduled to speak at the Chicago Board of Trade on Friday.

The jobs data made the dollar weaken against other major currencies but U.S. stock prices were up modestly in late-morning trade as investors evidently saw the continuing job growth as a positive economic indicator.

Prices for U.S. Treasury securities were softer, however, because debt investors focused on the strong November revision and worried it might sustain worry about potential inflation.

There also was a revision in the October jobs totals—to an increase of 25,000 rather than 44,000—but for the two months of October and November, the net effect was 71,000 more jobs than the government previously had estimated.

On average over 2005, some 168,250 new jobs were created each month—a steady if unspectacular pace of growth.

U.S. manufacturers hired 18,000 new employees in December on top of 8,000 in November and 13,000 in October—the first time since March-May 2004 that manufacturers have hired for three months in a row. But construction jobs declined by 9,000 last month, a reversal from November’s 42,000-job addition.

Overall, the employment figures imply a relatively strong hiring outlook. But modest gains in employment income—with average hourly earnings up 5 cents in December to $16.34—may help to heighten expectations that the Fed will soon be able to bring its 1-1/2-year rate-rise cycle to an end.

Economist Chris Low of FTN Financial in New York said the December report demonstrated the effectiveness of Fed policy over the past 1-1/2 years.

“They’ve raised rates enough to take some of the steam out of economic growth and hopefully prolong the expansion,” Low said, and the key remaining risk was “if they continue to tighten they may overdo it.”