December Unemployment Rate Falls as 200K Jobs Added

Jan. 6, 2011 — -- The unemployment rate unexpectedly fell in December to 8.5 percent, the lowest since February 2009, as the economy added a robust 200,000 jobs, the U.S. Labor Department reported Friday.

"This is a strong jobs report, relative to what we have seen in the past few years," Stephen Bronars, senior economist with Welch Consulting. However, he said a 200,000 increase in jobs is still far less than what is needed to get the labor market back to pre-recession levels.

The unemployment rate, which has fallen for four straight months, has decreased in part because the labor force has barely grown in the past year. There are still 5.6 million long-term unemployed workers, Bronars said.

Frank Fantozzi, president of Planned Financial Services, said the jobs report supports his claim that the economy will have steady, modest growth in GDP of around 2 to 2.25 percent.

"The markets should see this as favorable as well as improving investor confidence despite Europe's ups and downs as they try to solve their debt situation," he said.

Expectations for a solid month in hiring were raised Thursday when payroll processing company ADP reported private businesses added 325,000 workers in December in its monthly report.

Bronars said before the report was released that anything under 200,000 new jobs for December would have been "disappointing."

The economy needs to create at least 100,000 to 150,000 jobs a month to keep up with a growing labor force, according to economists' estimates.

Economists expected a gain of about 155,000 jobs for December, but with a slightly higher unemployment rate due to job cutbacks in the government sector and more people are re-entering the work force.

The unemployment rate ticked down two-tenths of one percent from November. November's unemployment rate was revised upward to 8.7 percent from 8.6 percent. The change in total nonfarm payroll employment for October was revised to 112,000 from 100,000, and the change for November was revised to 100,000 from 120,000.

The unemployment rate's previous low was 8.3 percent in February 2009 before it increased to 8.7 percent in March 2009.

There has been an average of 132,000 jobs added over the past six months for private sector payrolls.

The pockets of strength in employment growth in the past year have been professional and technical services, health care, and temporary help agencies. Most of the employment gains in the last year have been for college graduates. Growth everywhere else has been sluggish, Bronars said.

Manufacturing has rebounded more than other sectors but job losses in manufacturing were much worse in the downturn.

Employment in professional and technical services grew four times faster than rest of labor market, health care grew three times faster, and temporary help grew ten times faster.

Employment of teenage workers has fallen by about 30 percent since 2006. There are approximately 1.8 million fewer teenagers working today than in November 2006.

"Many of these young people are not counted as unemployed but are productive because they are enrolled in school. Nonetheless a good indicator that the labor market is improving would be for teenage employment to be rising," Bronars said.

"I will be looking for more broad-based employment gains before I will conclude that the labor market is in full recovery," Bronars said. "The unemployment rate has fallen, in part, because young people have delayed finishing school, and those attempting to re-enter the labor market have given up looking for work," Bronars said.