Unemployment Falls to 8.5% as U.S. Adds 200K Jobs

By Timothy R. Homan - Jan 6, 2012 9:07 PM GMT+0700
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A recruiter with Health First gives a job seeker her business card during a career fair in New York. Photographer: Daniel Acker/Bloomberg News

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Jan. 6 (Bloomberg) -- U.S. employers added more workers to payrolls than forecast in December and the jobless rate declined to an almost three-year low, showing that the labor market gained momentum heading into 2012. The 200,000 increase last month followed a revised 100,000 gain in November that was smaller than initially estimated, Labor Department figures showed in Washington. The unemployment rate unexpectedly fell to 8.5 percent, the lowest since February 2009, while hours worked and earnings climbed. Betty Liu, Megan Hughes and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

U.S. employers added more workers to payrolls than forecast in December and the jobless rate declined to an almost three-year low, showing that the labor market gained momentum heading into 2012.

The 200,000 increase followed a revised 100,000 rise in November that was smaller than first estimated, Labor Department figures showed in Washington. The median projection in a Bloomberg News survey called for a December gain of 155,000. The unemployment rate unexpectedly fell to 8.5 percent, the lowest since February 2009, while hours worked and earnings climbed.

Sustained payroll gains are needed to chip away at joblessness and support household spending, which accounts for about 70 percent of the world’s largest economy. The labor market figures follow recent data showing increased manufacturing and a rebound in consumer sentiment that show the U.S. is weathering Europe’s debt crisis.

“You got the trifecta -- more people working, wages up and the average work week up,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who accurately forecast the December payrolls gain. “You can’t really argue that that isn’t a sign of significant improvement in the job market.”

Stock-index futures held gains after the report, with the contract on the Standard & Poor’s 500 Index expiring in March climbing 0.2 percent to 1,275.5 at 9:05 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 1.97 percent from 2 percent late yesterday.

Last Year

Employers added 1.64 million workers in 2011, the best year for the American worker since 2006, after a 940,000 increase in 2010. Even with the gains, little headway has been made in recovering the 8.75 million jobs lost as a result of the recession that ended in June 2009.

“The tide is beginning to come back in,” James Glassman, senior economist at JP Morgan Chase & Co. in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We’ve got a long way to go. This is all positive, though, that we’re actually moving forward, and that’s an important trend.”

Bloomberg survey estimates of 86 economists for December ranged from increases of 80,000 to 220,000. Regular monthly revisions to prior reports subtracted a total of 8,000 jobs to payrolls in October and November.

Jobless Rate

The unemployment rate, derived from a separate survey of households, was forecast to climb to 8.7 percent, according to the survey median. The decrease in the jobless rate from a revised 8.7 percent in November reflected a decline in unemployment combined with a gain in Americans saying they were employed. The labor force was little changed.

Annual benchmark revisions to the household survey showed the unemployment rate averaged 8.9 percent in 2011, down from 9.6 percent and 9.3 percent in the previous two years. It still marked the worst three-year period since 1939 to 1941.

The labor participation rate held at 64 percent in December, today’s report showed.

Private hiring, which excludes government agencies, rose 212,000 after a revised gain of 120,000 in November. It was projected to climb by 178,000, the survey showed.

Factory Jobs

Factory payrolls (USMMMNCH) increased by 23,000, the strongest since July, after a 1,000 gain in the previous month. Manufacturing job growth last year was the strongest since 1997.

Employment at service-providers increased 152,000, with a 50,200 advance in the transportation industry that includes companies such as FedEx Corp. (FDX) and United Parcel Service Inc. (UPS) Last month’s gain in transportation jobs was the biggest since September 1997. In December 2010, a 50,100 gain in the industry’s payrolls was almost entirely reversed a month later.

Retail trade payrolls climbed 27,900 in December as companies kept hiring for the holiday shopping season.

Construction companies added 17,000 workers last month. Government payrolls decreased by 12,000 in December, reflecting cuts at the local government level.

Average hourly earnings rose 0.2 percent to $23.24, today’s report showed. The average work week for all workers increased to 34.4 hours.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 15.2 percent from 15.6 percent.

Long-Term Unemployed

The report also showed a decrease in long-term unemployed Americans. The number of people unemployed for 27 weeks or more fell as a percentage of all jobless, to 42.5 percent from 43.1 percent.

“Sales are robust, merchandise margins are strong, operating margins are growing,” Alexander Smith, chief executive officer of Fort Worth, Texas-based Pier 1 Imports Inc., said on a Dec. 15 conference call with analysts. “There’s going to be a little more hiring in the first part of the year without a doubt.”

Other companies also saw increased demand last month during the holiday shopping season. Same-store sales at U.S. retailers excluding Wal-Mart Stores Inc. rose 3.5 percent in December from a year earlier, according to figures yesterday from the International Council of Shopping Centers.

In the final three months of 2011, “clear signs emerged that U.S. consumers are more confident and that other underpinnings of our economy are either stable or slowly improving,” Don Johnson, vice president of U.S. sales for General Motors Co. (GM), said on a Jan. 4 conference call.

Faster job gains than those generated in 2011 may be needed to reduce unemployment. That’s one reason policy makers remain concerned.

“While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated,” Federal Reserve Chairman Ben S. Bernanke and other members of the Federal Open Market Committee said in a statement at the conclusion of a meeting last month in Washington.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net