US job growth fell sharply in December

Samira Hussain looks at how millions of Americans are coping with long-term unemployment

The US economy created only 74,000 jobs in December, with many Americans giving up looking for work, latest figures show.

The number of jobs created was the lowest for three years and was well under half the number expected by analysts.

The US unemployment rate fell to a five-year low of 6.7%.

However, that was mostly due to a drop in the number of Americans looking for work as they became discouraged.

The US had bad weather in December, which may have stalled hiring plans.

The labour force participation rate - a closely watched measure - fell noticeably. The share of Americans who are either working or looking is now 62.8%, close to 35-year lows.

The government counts people as unemployed only if they say they are actively searching for work.

The leisure, manufacturing and services sectors added jobs in December, but construction cut 16,000 jobs, the biggest drop in the industry in 20 months.

Analysis

The general picture from this monthly report is a surprisingly weak jobs situation.

It's true that unemployment fell, but that was largely due to people dropping out of the labour market. If they are not looking for work, they are not counted as unemployed.

The number of new jobs was well short of what's needed to keep up with a growing working age population.

The weakness of this report is at odds with other signs suggesting the US economy is gathering strength.

The news complicates the Federal Reserve's decisions about how quickly to curtail its efforts to stimulate the US economy.

Steam

In the four months before December, the average number of jobs created in the US was 214,000 a month.

Other figures on employment have suggested a healthy jobs market, and the Labor Department said 38,000 more jobs in November were created than the 203,000 previously reported.

Overall, the US economy is picking up steam, with recent figures for consumer spending, trade and factory output all strong.

This year, economists expect the US economy to grow by 3%, well up on the 1.7% last year.

The improving picture led the US central bank, the Federal Reserve, to start to taper its massive monetary stimulus programme from $85bn a month to $75bn.

If the Fed remains confident about the direction of the economy, it may trim this back further at its next meeting at the end of this month.

The meeting will be the last one chaired by Ben Bernanke, who will leave the post after eight years.

He will be replaced by Janet Yellen on 1 February.

On Friday, President Obama announced her replacement.

The new deputy Fed chairman will be the economist Stanley Fischer, formerly of the World Bank, the IMF and the Israeli central bank.

Chris Williamson, the chief economist at Markit, said: "A steep fall in unemployment in December ups the odds of further Fed tapering.

"Although non-farm payroll growth was disappointingly low, one month of weakness doesn't represent a trend and, with other economic indicators showing robust growth toward the end of last year, talk will intensify about when interest rates should start rising if we see a resumption of robust employment growth in January."

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