Saturday 25 October 2014

US jobs growth cools as recovery grinds on

Jason Lange

Published 04/01/2013 | 15:03

THE pace of hiring by US employers eased slightly in December, pointing to lacklustre economic growth that was unable to make further inroads in the unemployment rate.

Payrolls outside the farming sector grew 155,000 last month, the Labor Department said this afternoon. That was in line with analysts' expectations and slightly below the revised gain of 161,000 reported for November.

Gains in employment were distributed broadly throughout the economy, from manufacturing and construction to health care.

That should reinforce expectations of 2pc economic growth this year, unlikely to quickly bring down the unemployment rate or make the US Federal Reserve rethink its easy-money policies, which have been propping up the recovery.

"The US economy is just muddling through," said Tom di Galoma, managing director at Navigate Advisors in Stamford, Connecticut.

The jobless rate held steady at 7.8pc in December, down nearly a percentage point from a year earlier but still well above the average rate over the last 60 years of about 6pc.

The Labor Department raised its estimate for the unemployment rate in November by a tenth of a point to 7.8pc, citing a slight change in the labour market's seasonal swings.

Most economists expect the US economy will be held back by tax hikes this year as well as by weak spending by households and businesses, which are still trying to reduce their debt burdens.

Today’s data nonetheless gave signals of some momentum in the labour market's recovery from the 2007-09 recession. Many economists had expected December's payroll gains to be padded by one-time factors like the recovery from a mammoth storm that hit the East Coast in late October.

The government had said last month the storm had no substantial impact on the November data, and many economists expected the government on Friday to recant by revising downward its estimate for payroll gains in November. Instead, the government revised November payrolls upward by 15,000.

Average hourly earnings rose 0.3pc last month, slightly more than analysts had expected, while the length of the average workweek was unchanged.

"This shows the economy is chugging along, with payroll gains at about the average it has been over the past year," said Tom Porcelli, an economist at RBC Capital Markets in New York.

US S&P stock index futures added to gains after the data, while US Treasuries prices erased most of their losses.

Despite the signs of some momentum in hiring, a wave of government spending cuts due to begin around March loom over the economy.

Many economic forecasts assume the cuts - which would hit the military, education and other areas - will ultimately be pushed into next year as part of a deal sought by lawmakers to reduce gradually the government's debt burden.

Initially, the cuts were planned to have begun this month as part of a $600 billion austerity package that also included tax hikes.

Hiring in December may have been slowed by uncertainty over the timing of the austerity.

"Companies were very worried about the fiscal cliff, so it's a good number that they were still hiring," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.

Congress this week passed legislation to avoid most of the tax hikes and postpone the spending cuts.

Even with the last-minute deal to avoid much of the "fiscal cliff," most workers will see their take-home pay reduced this month as a two-year cut in payroll taxes expires.

Austerity already held back the US economy in 2012. In December, government payrolls shrank by 13,000.

That leaves the Fed's efforts to lower borrowing costs as the main program for stimulating the economy.

The Fed has kept interest rates near zero since 2008, and in September promised open-ended bond purchases to support lending further. On Thursday, however, minutes from the Fed's December policy review pointed to rising concerns over how the asset purchases will affect financial markets.

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