US jobless rate falls to 5.6% in best year since 1999

Paul Handley
The US economy added 257,000 jobs in January, official figures show (AFP Photo/Spencer Platt)

The US economy added 257,000 jobs in January, official figures show

The US economy added 257,000 jobs in January, official figures show (AFP Photo/Spencer Platt)

Washington (AFP) - The US unemployment rate fell to 5.6 percent in December, the lowest level in six and a half years, as the country capped its best year for job creation since 1999.

In a fresh sign that the United States is creating more distance from the weakness in Europe and elsewhere, the Commerce Department said Friday that the economy churned out 252,000 jobs last month.

Together with upward revisions of the previous two months -- 50,000 more jobs than previously reported -- December rounded out the best year for job generation in 15 years, with almost three million net new jobs added.

That helped push the unemployment rate down 0.2 percentage point from November. The jobless rate was 6.7 percent a year ago, and hade peaked at 10.0 percent in October 2009.

"2014 ends with a bang," cheered Chris Low at FTN Financial, pointing out that even industries that might have suffered from the sharp oil price decline still showed strength.

The job gains were strongest in professional and business services, restaurants and bars, and the construction industry, underscoring the healthy growth in the US services sector, while job creation in manufacturing was weak.

But hourly earnings, another indicator of the strength of the labor market, almost totally reversed the previous month's surprise gain. Hourly earnings were up just 1.7 percent from a year ago, just keeping up with inflation.

"For the last five years, nominal wages have grown far slower than any reasonable wage target. The fact is that the economy is not growing enough for workers to feel the effects in their paychecks," said Elise Gould of the Economic Policy Institute.

But other analysts downplayed the wage figures, saying the sheer number of jobs being generated in recent months will have to show up soon in higher pay.

"With the trend in the unemployment rate firmly downward, we think it is a matter of time before the data show more strength," said Jim O'Sullivan of High Frequency Economics.

- Bullish numbers for Fed -

Even the White House, which has sought to keep the focus on the lot of average American households rather than the headline numbers, said incomes were getting better already.

"Although nominal wages fell in December, inflation-adjusted wages have generally been rising, and job growth has picked up in sectors that traditionally provide good, middle-class jobs," said Jason Furman, chairman of President Barack Obama's Council of Economic Advisers, in a statement.

Most analysts said the strong headline job numbers will keep the Federal Reserve on track to raise interest rates toward the middle of the year, even without signs of inflationary pressure.

The Federal Open Market Committee, the Fed's policy body, has held rates at a rock-bottom 0-0.25 percent since the end of 2008 to help the economy recovery.

In mid-December Fed chair Janet Yellen made clear that the first rate hike is likely to take place this year, even though there is no pressure from rising prices to do so.

"All that matters here is that if payroll growth remains at anything like its current pace, the Fed will very soon have to confront an unemployment rate hitting its view of the sustainable rate," said Ian Shepherdson of Pantheon Macroeconomics.

"Right now, doves can still point to soft wage gains -- the only disappointing aspect of this report -- but that will not last forever."

FTN's Low also pointed to the likelihood of a rate hike this year. "This report will keep the FOMC focused on 2015 tightening. The only questions are when will they opt for liftoff, and will the tenor of data change before we get there," he said.

US markets took the news as somewhat negative for US growth, focusing on the limited upside for consumer spending due to flat wages.

On Wall Street, the S&P 500 lost 0.84 percent, and the dollar slipped to $1.1842 to the euro.

The five-year Treasury yield meanwhile fell to 1.44 percent from 1.48 percent, suggesting the markets expect a slower march toward a rate hike than previously anticipated.