U.S. defies expectations to gain 200,000 jobs

The American labour market had its best showing in five years in December, the U.S. Bureau of Labor Statistics reported Friday, creating a better-than-expected 200,000 jobs.

The increase, well beyond the 155,000 many economists had expected, pushed the unemployment rate down 0.2 percentage points to 8.5 per cent — its lowest level in nearly three years. The rate has dropped by 0.6 percentage points since August.

Manufacturing added 23,000 jobs, as did the health-care industry; transportation and warehousing added 50,000 jobs; retailers added 28,000 jobs; even the beleaguered construction industry added 17,000 workers.

The private sector created 212,000 jobs, which was also better than the consensus among economists for 178,000. Government payrolls declined by 12,000.

The hiring gains cap a six-month stretch in which the economy generated 100,000 jobs or more in each month. That hasn't happened since April 2006.

Wages increased: Average hourly earnings were up 0.2 per cent and weekly earnings rose 0.5 per cent.

Canadian Prime Minister Stephen Harper said the U.S. jobs news was encouraging, as the U.S. is Canada's largest trading partner and Canada's economy is still deeply dependant on its southern neighbour.

"I'm pleased … to see some increasing job growth in the United States in the last few months," Harper said. "This has been one of the things that's been lacking over the past couple of years. We've seen some 600,000 net new jobs created in Canada but we haven't seen the kind of job growth we need in the United States to help with our trade."

TD Bank senior economist James Marple called the report "encouraging," noting that the average work week lengthened, a sign that business is picking up and companies may soon need more workers.

Some gains may be temporary

But Marple cautioned that a major contributor to the gain in service sector employment was a 42,000 increase in the category of couriers and messengers, reflecting temporary hiring for the holiday season. It could stem from a big jump in online shopping over the holidays, the bureau said.

The government adjusts the figures to account for those seasonal factors, but doesn't always fully account for them.

"For the last three years there has been a strange seasonal jump in this category, which is subsequently unwound in January," Marple said in a commentary. "It could be that changes in the seasonal pattern of employment over time are leading to an overestimation of payrolls employment in December."

"I wouldn’t take the 8.5 per cent unemployment rate as a great sign, however, in that it is entirely likely that should job growth prove resilient, discouraged workers are likely to return to markets seeking employment and thereby put upward pressure on the size of the labour force and the unemployment rate," Scotiabank economist Derek Holt said.

But others expressed concern that the size of the U.S. work force is, in fact, shrinking.

The bureau's measure of the size of the labour force includes both people working and those searching for jobs. It shrank slightly last month and is little changed from the spring. That's a concern because usually a strengthening job market draws more applicants.

'You have to take that unemployment rate decline with a grain of salt.' — Marisa DiNatale, economist, Moody's Analytics

The work force has declined by about 160,000 over the past two months, one reason the unemployment rate has fallen.

"You have to take that unemployment rate decline with a grain of salt when you look at the declines in the labour force," said Marisa DiNatale, an economist at Moody's Analytics.

The government only counts people as unemployed if they are actively searching for jobs. Discouraged workers who have given up on looking are not included in the rate. Some of those who are counted as employed are working part time, but want full-time work.

When including those groups, the broader "underemployment" rate was 15.2 per cent. That's down from 15.6 per cent the previous month, but still high. The figure has dropped for three straight months.

And the job market has a long way to go to recover from the Great Recession. The United States has six million fewer jobs that it did in December 2007, when the recession began.

There are now 13.1 million officially unemployed people in the U.S. For 2011 as a whole, the world's largest economy added 1.6 million jobs, better than the 940,000 added in 2010. The jobless rate averaged 8.9 per cent last year, down from 9.6 per cent the previous year.

"There is no question that today's employment report is a positive and there is also no question that the pace of job growth has accelerated of late," said Dan Greenhaus, an analyst at BTIG LLC, a brokerage firm.

Obama sees progress in jobs report

But Marple warned it may not be possible to keep the pace going. "Several challenges will face the U.S. labour market over 2012 including a slowdown in global growth and ongoing fiscal restraint."

Given that, he said "sustained monthly job growth of 200,000 will be hard to come by."

The news was welcomed by U.S. President Barack Obama, who is facing an election this year with the highest unemployment rate of any sitting president since the Second World War.

"We have made real progress," Obama said. Now is not the time to stop."

He called on Congress to extend a tax Social Security payroll tax cut that is due to expire at the end of next month.

Campaigning in New Hampshire for Obama's job, former Pennsylvania Senator Rick Santorum claimed credit for Republicans, suggesting the gains were tied to voter optimism that a Republican would take the White House.

"There's a lot of concern still," added Santorum, who finished in a virtual tie with Mitt Romney in the Iowa caucuses earlier this week. Another candidate, former House Speaker Newt Gingrich, dismissed the job gains as inadequate.