Job growth fell off a cliff in December, with the economy adding only an anemic 74,000 jobs for the month, the smallest number in three years, the Department of Labor said Friday morning.
While politicians will try to tout the unemployment rate declining — from 7% to 6.7% — that number is almost entirely due to record numbers of people dropping out of the workforce and giving up looking for jobs. The Bureau of Labor Statistics only counts people actively looking for work as “unemployed.”
There were a stunning 2.9 million fewer Americans in the labor force in December 2013 than in December 2012, while only 1.4 million jobs were added in that 12-month period. A record 91.8 million people are now not participating in the workforce. Workforce participation is at an all-time low of 62.8%.
The U-6 measure, which includes more than just those actively looking for work, would put the real unemployment rate at 13.1%.
Optimistic economists had expected 193,000 jobs to be created. This is the lowest number since January 2011.
A few news outlets like Reuters — which had projected 196,000 jobs created for December — tried to pass this setback off on the weather, which is a nonsense argument as the jobs numbers are seasonally adjusted and it gets cold every December.
Doug Duncan, chief economist at Fannie Mae, took a see-no-evil approach to the December numbers and the long-term trend of a consistently declining workforce participation rate.
"We are hesitant to believe that today’s bearish jobs numbers confirm that the labor market has weakened materially over the past month as they go against other recent employment-related reports and incoming economic data on consumers and businesses," Duncan said. "While a deteriorating jobs picture is a source of concern for the trajectory of the housing recovery, we will require more evidence of a labor market slowdown prior to changing our view. We believe the odds are that the stumble witnessed today will soon reverse, and economic growth will strengthen this year, with help from firming private sector activity amid waning fiscal drags."
Those in the housing and investment industries will be watching closely how the Federal Reserve will receive this precipitous job drop. The Fed might start rethinking its decision last month to start cutting back on its monthly bond purchases by $10 billion, driven in part by a faith in a recovering job market.
Sterne Agee chief economist Lindsey Piegza took a dimmer view.
"According to comments made in the press conference following the December FOMC statement release and the discussion outlined in the minutes released earlier this week, Fed committee members opted to taper sooner rather than later based on the improvement thus far and in anticipation of further improvement in the labor market. Some officials warned, however, that progress towards a full recovery was not assured," Piegza said.
"And while there has been noticeable improvement in terms of the unemployment rate, other important elements of cyclical weakness in low labor force participation and still-high levels of long duration unemployment suggest a much less rosy picture. Those looking for improvement can certainly point to a further decline in the unemployment rate, just two-tenths above the Fed’s threshold of 6.5%, but still those looking to err on the side of caution can simply point to the tepid pace of job creation, averaging just 169k over the past six months, noticeably below the 180k pace at the start of 2013 and a further erosion in the participation rate."
Jed Kolko, chief economist and vice presiden of analytics at Trulia, said one of the few bright spots was in construction employment in December.
"While the overall jobs report showed disappointingly low payroll growth, the report has silver linings for housing demand going into 2014," Kolko told HousingWire. "More young adults were working, and job growth in clobbered metros picked up. As the housing rebound effect fades, job growth for young adults and in clobbered metros will become even more important for the housing recovery in 2014."
Trulia's analysis of the number shows that residential construction employment, including residential specialty trade contractors, increased by 6,200 in December versus one month earlier, and 25,600 versus three months earlier. Year-over-year, residential construction jobs increased more than employment overall. However, construction employment is growing much more slowly than the units under construction (+28% YoY in November) because construction employment is higher than normal relative to the level of construction activity.