Economy Added 200,000 Jobs, Unemployment Reaches Three-Year Low in December

The economy added 200,000 jobs in December, and the unemployment rate fell to 8.5 percent, the lowest level in nearly three years, the Labor Department reported on Friday, offering fresh signs of improvement in the U.S. economy.

Economists surveyed by Bloomberg ahead of the release expected payrolls to add 155,000 jobs and the unemployment rate to rise to 8.7 percent. The economy needs to add about 90,000 new jobs every month just to keep pace with population growth.

Employers added 100,000 jobs in November, a 20,000-job downward revision from earlier reports. The surprising drop in unemployment from 9.0 to 8.6 percent in November stemmed partly from job seekers becoming discouraged and no longer looking for work. Last month's unemployment rate was the lowest since February 2009. 

In December, the labor-force participation rate held steady, suggesting that the drop in unemployment was due to payrolls growing rather than discouraged job seekers. The U-6 number, a broader measure of unemployment than the heading unemployment rate, fell from 15.6 percent in November to 15.2 percent in December.

Other good news: The average workweek increased by 0.1 hours to 34.4 hours in December, and average hourly earnings rose by 4 cents to $23.24.

But some components of the relatively sunny report suggest that January could bring reversals to December’s gains.

A large part of the payroll gain – 42,000 jobs – was in the couriers and messengers industry. The same industry contributed an unusually large boost to December 2010’s report and saw commensurate layoffs in January. “The seasonal adjustments don’t appear to be strong enough,” said Jeffrey Greenberg, a U.S. economist at Nomura Securities.

Construction hiring is another area that may be inflated because of seasonal adjustments. Construction employment changed little in December, according to the Labor Department. But an unusually temperate month made more construction work possible --and because the industry usually has a large seasonal adjustment in December, the actual employment situation may have been weaker than reported, Greenberg said.

The U.S. economy also faces potential headwinds from Europe, where recession is likely in 2012. 

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