Payrolls in U.S. Drop 85,000; Unemployment at 10% (Update3)

By Bob Willis
Jan. 8 (Bloomberg) -- The U.S. unexpectedly lost 85,000 jobs in December, supporting Federal Reserve forecasts that a labor market recovery will take time and making it more likely interest rates will stay near zero for the next six months.
Payrolls fell last month after a revision showed a gain of 4,000 in November, the first in almost two years. The median estimate of economists surveyed by Bloomberg News projected no change in December. The jobless rate held at 10 percent.
Stocks fell on concern the recovery may weaken, and Treasury yields and the dollar slid as traders increased bets the Fed will keep interest rates near a record low for "an extended period." While job cuts have slowed, companies are holding back on hiring as they gauge the strength of the economic recovery and contend with tight credit.
"There is still a lot of caution about the recovery because of lingering credit-crunch effects," said Jim O’Sullivan, chief economist at MF Global Inc. in New York, who forecast a payrolls decline of 100,000. "It’s just a matter of time, probably a month or two, before the trend in payrolls turns positive on a sustained basis."
The Standard & Poor’s 500 Index fell 0.1 percent to
1,140.43 at 11:14 a.m. in New York. The yield on the two-year Treasury note fell to 0.96 percent from 1.02 percent late yesterday. The dollar slid from a four-month high against the yen, dropping 0.6 percent to 92.84 yen from 93.37 yesterday.
Construction Payrolls
Payrolls in construction dropped almost twice as much in December as a month earlier, possibly reflecting colder and wetter weather. Manufacturing shed the fewest jobs last month since the recession began in December 2007.
The 7.2 million drop in payrolls over the past two years has been the biggest as a percentage of all jobs since World War II was ending in 1944-45.
The Obama administration is under pressure after about half of the jobs lost during the recession occurred since the president’s inauguration in January of last year.
"This is a very stubborn recession," U.S. Labor Secretary Hilda Solis said in an interview today on Bloomberg Television.
"We’re going to have to work harder to create jobs."
Monthly payroll losses accelerated after the collapse of Lehman Brothers Holdings Inc. in September 2008 and peaked at 741,000 in January 2009.
Revisions subtracted 1,000 from payroll figures previously reported for November and October. The November reading was revised to show a gain in jobs compared with an initially reported 11,000 decline.
Range of Forecasts
Payrolls were forecast to be unchanged, according to the median estimate of 76 economists surveyed by Bloomberg News.
Estimates ranged from a decrease of 100,000 to a gain of 85,000.
The jobless rate was projected to hold at 10 percent.
Forecasts ranged from 9.9 percent to 10.2 percent.
The survey of households showed employment dropped by 589,000 workers last month. A decrease of 661,000 in the number of people saying they were in the labor force prevented the jobless rate from rising. The drop brought the participation rate, or the share of the population in the labor force, down to
64.6 percent, a 24-year low.
The average work week held at 33.2 hours in December, while average weekly earnings rose to $624.16. Workers’ average hourly earnings were 2.2 percent higher than December 2008.

Manufacturing Jobs

Today’s report showed factory payrolls declined 27,000 after decreasing 35,000 in the prior month. The median forecast by economists called for a drop of 35,000. The decline included a drop of 4,900 jobs in auto manufacturing and parts industries.
Sales of cars and light trucks increased for a third consecutive month in December after plunging in the wake of the government’s so-called cash-for-clunkers incentive plan.
Vehicles sold at an 11.2 million annual pace last month, up from a 10.9 million rate in November.
Payrolls at builders fell 53,000 after decreasing 27,000.
Financial firms increased payrolls by 4,000, after a 6,000 decrease the prior month.
Colder and wetter weather than average during the Dec. 12 survey week may have restrained the payroll numbers last month, compared with the unseasonably mild early November, Raymond Stone, managing director of Stone & McCarthy Research Associates in Skillman, New Jersey, said in a note to clients. "Weather- sensitive" industries such as construction and travel may see "weaker" payroll numbers, he said before the report.

Employment in Services

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 4,000 workers after adding 62,000 in November.
Payrolls increased at professional business services and education and health in the last two months. Retail payrolls decreased by 10,200 after a 13,500 decline.
President Barack Obama on Dec. 8 proposed additional spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient in a second round of efforts to cut the jobless rate. In early 2009, the administration’s economic advisers forecast the $797 million stimulus plan would keep unemployment below 8 percent.
In another government boost, the Census Bureau will hire
1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years.
That hiring may boost payrolls by a peak of 700,000 in May before those workers begin getting dismissed in June, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York.

‘Army of People’

"They’re going to hire an army of people," said Julia Coronado, a senior economist at BNP Paribas in New York. "In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery."
Government payrolls decreased by 21,000 after a 4,000 gain the prior month.
The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- rose to 17.3 percent from
17.2 percent.
The number of temporary workers increased 46,500 in December, the fifth straight gain. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff.
Increases in temporary hiring are "a classic part of the recovery," Manpower Inc. Chief Executive Officer Jeffrey Joerres said in a Bloomberg Television interview Dec. 31.

Economic Growth

The economy grew at a 2.2 percent annual rate in the third quarter, the first gain in more than a year. Economists at JPMorgan Chase & Co. and Credit Suisse are forecasting fourth- quarter growth of more than 4 percent.
Economists surveyed by Bloomberg last month projected the jobless rate will exceed 10 percent through the middle of this year even as the economy expands 2.6 percent.
Some companies are still trimming payrolls. Volvo AB, the world’s second-largest truck-maker, will shut a plant in Asheville, North Carolina, that makes earth-moving vehicles and eliminate about 228 jobs to restore profit at its construction- equipment unit, Gothenburg, Sweden-based Volvo said Dec. 11 in a statement.
The unit’s "commitment to the U.S. market remains strong," and Volvo is sticking to investment plans for another site in Shippensburg, Pennsylvania, Olof Persson, the division’s chief, said in the statement.
Among companies resuming hiring, Caterpillar Inc., the world’s largest maker of bulldozers, aims to bring back some laid-off workers this year as sales improve, Chief Executive Officer Jim Owens said last month.
"We’ll gradually begin to call people back and to rebuild our overall sales and ability to ship product," Owens said in a Dec. 11 interview with Bloomberg Television. "It will gradually begin to pick up as 2010 unfolds."