US payrolls rise solidly, unemployment falls to 5.6 percent

[WASHINGTON] US job growth increased briskly in December, further strengthening the economy's fundamentals and opening the door wider to an interest rate increase from the Federal Reserve this year despite a gloomy world economy.

Nonfarm payrolls increased 252,000 last month after a revised 353,000 jump in November, the Labor Department said on Friday. The unemployment rate fell 0.2 percentage point to a 6-1/2 year low of 5.6 per cent. However, some of the decline reflected people leaving the labor force.

December marked the 11th straight month of payroll increases above 200,000, the longest stretch since 1994. With October's count also revised higher, the economy created 50,000 more jobs than previously reported in the prior two months.

Economists polled by Reuters had expected employment to increase 240,000 in December and the unemployment rate to fall one-tenth of a percentage point to 5.7 per cent.

The sturdy job gains added to robust third-quarter growth data, as well as solid November industrial production and retail sales reports, in suggesting the economy would weather turbulence in Europe, Japan, China and some emerging markets.

But a five cent drop in average hourly earnings after rising six cents in November, took some shine off the report.

Wage growth has been frustratingly tepid and economists believe the Federal Reserve will be hesitant to pull the trigger on raising interest rates without a significant increase in labor costs.

The U.S. central bank has kept its short-term interest rate near zero since December 2008.

It has not raised interest rates since 2006, but recently signaled it was moving closer to hiking, even if inflation remains below the Fed's 2.0 per cent target. Most economists expect the first rate increase in June.

But an acceleration in wage gains is in the cards as the labor market continues to tighten.

That, together with lower gasoline prices are expected to provide a tail wind to consumer spending this year.

The bigger survey of employers showed job gains in 2014 were the largest since 1999.

The smaller household survey data from which the unemployment rate is derived was revised back five years. The revisions showed no material shift in the trend.

The unemployment rate dropped 1.1 percentage points in 2014.

Most of the measures tracked by Fed Chair Janet Yellen to gauge the amount of slack in the labor market continued to point to tightening conditions in December.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, fell two-tenths of a percentage point to 11.2 per cent, the lowest since September 2008.

The ranks of the long-term unemployed continued to shrink in December. But the labor force participation rate fell to 62.7 per cent from 62.9 per cent in November.

Job gains in December were dispersed across all sectors. Private payrolls rose 240,000, with construction employment up 48,000, the largest rise since January. Manufacturing payrolls rose 17,000.

Government employment increased 12,000 last month. The average work week was steady at a 6-1/2 year high of 34.6 hours.

REUTERS