December Jobs Miss Expectations

December jobs report article updated with analyst commentary, additional information.

WASHINGTON ( TheStreet) -- The economy added fewer jobs than expected in December, even as the unemployment rate dropped more than expected, raising doubts on the speed of the recovery in the labor market.

The Labor Department said in its Employment Situation Report early Friday that nonfarm payrolls rose by 103,000 in December, up from an upwardly revised 71,000 in the prior month. Economists expected payrolls to rise by 160,000 jobs, according to median consensus estimates available on Bloomberg. Estimates ranged from as low as 98,000 to as high as 225,000.

Companies accelerated hiring in December, with the private sector payrolls increasing by 113,000 after growing more modestly in November. Consensus called for a private payroll addition of 180,000.

The unemployment rate moved sharply lower to 9.4%, surprising the markets. That is the the lowest level since May 2009. Economists were expecting the rate to dip marginally to 9.7% from 9.8% in the previous month. The number of unemployed dropping by 556,000 to 14.5 million in December. There was also a withdrawal in the labor participation rate, which edged down to 64.3%.
Now Hiring

Stocks were mostly weaker following the report, as expectations had run high ahead of the report. A strong ADP report on private sector job growth Wednesday had set up expectations for a big number. Companies added 297,000 jobs in December, according to the latest ADP National Employment Report. That was nearly three times as much as the 100,000 jobs economists were expecting.

On Thursday, the Labor Department said initial weekly claims rose to 409,000 . But the overall trend has been down in the last several weeks, lifting hopes that layoffs were beginning to let up.

Still, while the absolute number for December came in lower than expected, the upward revision to November's estimates was a positive in the report, with private sector job growth revised upwards to 79,000 from 50,000 previously. The Labor Department also revised October's estimates to 210,000 from 172,000.

A weaker-than-expected November jobs report cast doubts on the recovery story last month, confounding experts who had forecast a stronger number amid evidence of an uptick in other areas of the economy.

Patrick O'Keefe, director of economic research at J.H. Cohn and a former deputy assistant secretary at the Department of Labor, said there was more to the report than initially met the eye. "The BLS report was not as significant a head fake as may have been thought," he said. He pointed out that revisions to previous estimates made it harder to make accurate predictions about additions to the payrolls from month to month. "All those who put numbers to the estimate shall be forgiven because November was underestimated."

"Overall it fell short of expectations but when looked at from a two-to-three month perspective as opposed to a one-month report, it is generally positive," said O'Keefe, citing the upward revisions to private sector growth in November. "The month to month was less robust but not severely so. It does confirm that the labor market is improving, but at a sub-par rate."

On the unemployment rate, O'Keefe expressed surprise at the withdrawal in the labor participation rate. There were 1.3 million discouraged workers in December, slightly higher than in November. "Households are yet to accept that the economy is adding job opportunities. The JOLTS (job openings and labor turnover data) tells us differently, but it is yet to sink into their consciousness."

O'Keefe says a more relevant metric might be the employment-to-population ratio, or EPR, which measures the number of employed persons as a percentage of population over the age of 16, and has less moving parts than the unemployment rate. The EPR ratio ticked up a tenth of a point at 58.3% in December.

That level was at 62.7% prior to the recession and has been essentially unchanged since the recession officially ended in June 2009, further evidence of just how much the job market has lagged the economic recovery in the past 18 months.

There were two other positive takeaways from the report. One was that the contribution of temporary hires to overall payroll growth reduced to 14% from 25% in the prior eleven months. That meant companies were more confident now to make permanent hires. "A drop in the temporary hiring rate would mean companies are ready to move from dating to marriage," said O'Keefe ahead of the report.

Also the number of underemployed dropped slightly, suggesting that people were moving from part-time to full-time jobs.

The average workweek for all employees on private nonfarm payrolls held at 34.3 hours in December. The average hourly earnings for all employees on private nonfarm payrolls increased by 3 cents, or 0.1 percent, to $22.78.

The SPDR Dow Jones Industrial Average ETF ( DIA) and the SPDR S&P 500 ( SPY) were down 0.1% in premarket trading while the PowerShares QQQ ( QQQQ) was up 0.2%.

-- Written by Shanthi Bharatwaj in New York

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