Nonfarm Payrolls Surge 378,000

Unflagging strength in service-sector payrolls and a huge gain in construction jobs produced a much, much stronger-than-expected December

employment report

this morning.

Nonfarm payrolls surged 378,000 for the month, the

Labor Department

reported at 8:30 a.m. EST. Economists surveyed by

Reuters

had forecast a gain of just 212,000 on average.

The bond market is under pressure on the news, with losses concentrated in the short-maturity instruments, which are most sensitive to the potential for changes in the fed funds rate, controlled by the

Fed

. The two-year note's yield, for example, has risen to 4.73%, just two basis points shy of the 4.75% fed funds rate and the highest since Sept. 8, before the Fed started cutting rates last year.

Service-sector payrolls saw their strongest month since May, surging by 290,000 on the heels of November's revised 276,000 gain. But the real hero of the December report was the construction sector. Construction payrolls leapt by 104,000, their largest gain in more than 10 years. In October and November, construction payrolls rose by 31,000 and 42,000 respectively. Some economists correctly

forecast that construction payrolls would be strong because the

Labor Department's

seasonal adjustment factors were looking for weather-related layoffs in a month when the weather was unseasonably warm during the survey week.

Manufacturing payrolls continued to shrink, but not by as much as they did the previous two months. Manufacturing jobs lost totaled 13,000, down from 59,000 in October and 61,000 in November.

The jobs report's other three components were also stronger than expected. The

unemployment rate

dropped back to 4.3%, the multiyear low reached in April and May, from 4.4% in November.

Average hourly earnings

rose 0.4%, lifting the annual rate to 3.8% from 3.7%. And the

average workweek

lengthened to 34.6 hours from 34.5.

The 12-month average of total payroll gains rose to 239,000 from 236,000 in November.