Employers add fewer to payrolls than forecast and jobless rate hits 5%, boosting expectations for aggressive Fed rate cut.
NEW YORK (CNNMoney.com) -- The nation's labor market worsened in December to the weakest level since the shock that followed Hurricane Katrina, as the problems in housing and mortgages, coupled with a disappointing pre-holiday shopping season, took a bite out of job opportunities.
Employers added far fewer jobs in the month than had been forecast, while the unemployment rate shot up to 5 percent, which was a two-year high, according to a government report Friday. Stocks sold off sharply on rising fears of a possible recession ahead.
"December's bleak jobs report represents the siren call that this business cycle is just about over," said Bernard Baumohl, the managing director of the Economic Outlook Group, an economic research firm in Princeton, NJ. "We're about to tilt over to the other side of the economic curve and begin the downswing."
But some other economists suggested the report was not as weak as it appears, with most of the problems limited to the housing and finance sectors.
"Yes, job creation is slowing, but 5 percent unemployment does not a recession make," said Rich Yamarone, director of economic research at Argus Research.
He said part of the problem with the report was an ice storm that hit much of the central United States the week the Labor Department was collecting data. Many of the tens of thousands of workers unable to get to their jobs due to the storm would not be counted as employed if they don't get paid for their missed work.
The report showed a net gain of 18,000 jobs in the month, down sharply from the revised 115,000 gain reported in November, the Labor Department said. Economists surveyed by Briefing.com had forecast a gain of 70,000 jobs.
The December figure was the weakest one-month gain in jobs since a loss was reported in August 2003.
The weak report raised expectations that the Federal Reserve will make another deep rate cut at its meeting on Jan. 31. While stocks fell, the bond yield also fell sharply. Investors trading fed funds futures were pricing in a 75 percent chance that the central bank would move to cut rates by a half percentage point at the end of the month, up from a 67 percent chance of a cut that deep at the close of trading Thursday.
The 5 percent unemployment rate was the highest reading since November 2005, when job losses from Hurricane Katrina were still being felt. The unemployment rate had been 4.7 percent in November, and economists had expected it to creep higher to just 4.8 percent.
The rise was the biggest one-month jump in the unemployment rate since August 2001, when the nation was in a recession.
The report found a 49,000 seasonally adjusted drop in construction jobs. While home building has been sharply off for most of 2007, the losses in construction as a whole had been limited by strong non-residential building, such as offices and government projects. But this time there were job losses across all of the various sectors of construction.
In addition, manufacturing jobs fell by 31,000. Once again, the losses were spread throughout the sector, not limited to the battered auto industry where job losses were well known, and included appliance makers as well as manufacturers of electronics, computers, clothing and other nondurable goods.
The service sector fared better, adding 93,000 jobs as a whole. But even in that sector there was weakness, as retailers trimmed 24,000 workers in the seasonally-adjusted estimate, as many of them reported weaker-than-hoped December sales ahead of the holiday.
In addition, lenders continued to cut jobs, as they responded to the problems in the mortgage markets, trimming 7,000 more jobs.
There as also an impact from the writers' strike that hit Hollywood and the nation's television networks, as the motion picture and sound recording industries reported a drop of nearly 12,000 jobs.taken of money.cnn.com