US unemployment rate falls to 5.6 percent in best year since 1999
The US unemployment rate fell to 5.6 percent in December, the lowest level in six and a half years, as the country capped its best year for job creation since 1999.
In a fresh sign that the United States is creating more distance with the weakness in Europe and elsewhere, the Commerce Department said Friday that the economy churned out 252,000 jobs last month.
Together with upward revisions of the previous two months, December capped the best year for job generation in 15 years, with almost three million net new jobs added.
That helped push the unemployment rate down 0.2 percentage point from November, representing a sharp fall from 6.7 percent a year ago, and the 10.0 percent peak in October 2009.
“2014 ends with a bang,” cheered Chris Low at FTN Financial, pointing out that even industries that might have suffered from the sharp oil price decline still showed strength.
The job gains were strongest in professional and business services, restaurants and bars, and the construction industry, underscoring the healthy growth in the US services sector, while gains in manufacturing were small.
However, hourly earnings, one sign of just how strong the economy is, fell back, almost totally reversing the previous month’s surprise gain. Hourly earnings were up just 1.7 percent from a year ago, just keeping up with inflation.
In addition, the two-notch fall in the unemployment rate was in part due to more people exiting the US workforce. The participation rate in the civilian labor force fell to 62.7 percent from 62.9 percent, matching the previous low in the wake of the 2008-2009 Great Recession.
But analysts downplayed that data, saying the sheer number of jobs being generated in recent months will have to show up soon in higher wages.
“With the trend in the unemployment rate firmly downward, we think it is a matter of time before the (wage) data show more strength,” said Jim O’Sullivan of High Frequency Economics.
– Bullish numbers for Fed –
Even the White House, which has sought to keep the focus on the lot of average American households rather than the headline numbers, said incomes were getting better already.
“Although nominal wages fell in December, inflation-adjusted wages have generally been rising, and job growth has picked up in sectors that traditionally provide good, middle-class jobs,” said Jason Furman, chairman of President Barack Obama’s Council of Economic Advisers, in a statement.
Most analysts said the strong headline job numbers will keep the Federal Reserve on track to raise interest rates toward the middle of the year, even without signs of inflationary pressure.
The Federal Open Market Committee, the Fed’s policy body, has held rates at a rock-bottom 0-0.25 percent since the end of 2008 to help the economy recovery.
In mid-December Fed chair Janet Yellen made clear that the first rate hike is likely to take place this year, even though there is no pressure from rising prices to do so.
“All that matters here is that if payroll growth remains at anything like its current pace, the Fed will very soon have to confront an unemployment rate hitting its view of the sustainable rate,” said Ian Shepherdson of Pantheon Macroeconomics.
“Right now, doves can still point to soft wage gains — the only disappointing aspect of this report — but that will not last forever.”
FTN’s Low also pointed to the likelihood of a rate hike this year. “This report will keep the FOMC focused on 2015 tightening. The only questions are when will they opt for liftoff, and will the tenor of data change before we get there,” he said.
US markets had mixed reactions to the report.
The five-year Treasury yield fell to 1.45 percent from 1.48 percent ahead of the news, while the dollar was virtually unchanged at $1.1804 to the euro. Wall Street was modestly lower, with the S&P 500 down 0.37 percent.