U.S. economy adds 155K jobs; rate remains 7.8 percent

WASHINGTON – U.S. employers added 155,000 jobs in December, a steady gain that shows hiring held up during the tense negotiations to resolve the fiscal cliff.

The solid job growth wasn’t enough to reduce the unemployment rate, which remained 7.8 percent last month, the Labor Department said Friday. The rate for November was revised up from an initially reported 7.7 percent.

Each January, the government updates the monthly unemployment rates for the previous five years. The rates for most months don’t change.

The government said hiring was stronger in November than it first estimated. November’s job increases were revised up 15,000 to 161,000. October’s increase was nearly unchanged at 137,000.

The “gain is perhaps better than it looks given that firms were probably nervous about adding workers with the fiscal cliff looming,” said Paul Ashworth, an economist at Capital Economics.

Even so, hiring hasn’t been strong enough to quickly reduce still-high unemployment. The job gains for December almost exactly matched the average monthly pace for the past two years. Hiring has been steady but modest as the economy has grown slowly since the recession ended more than three years ago.

For 2012, employers added 1.84 million jobs, an average of 153,000 jobs a month, roughly matching the job totals for 2011.

Robust hiring in manufacturing and construction fueled the December job growth. Construction firms added 30,000, the most in 15 months. That increase likely reflected hiring needed to rebuild after Superstorm Sandy and also gains in home building that have contributed to a housing recovery.

Manufacturers added 25,000 jobs, the most in nine months.

Other higher-paying industries also added jobs. Professional and business services, which include positions in information technology, management and architecture, gained 19,000. Financial services added 9,000 and health care 55,000.

Lower-paying industry sectors were mixed. Restaurants and bars added 38,000 jobs. Retailers cut 11,300, a sign that the holiday shopping season might have been sluggish. But those cuts followed three months of strong gains.

All the job gains last month came from private employers. Governments shed 13,000 jobs, mostly in local school systems.

The stable hiring pace shows that employers didn’t panic during the high-stakes talks between Congress and the White House over tax increases and spending cuts that weren’t resolved until New Year’s.

That’s an encouraging sign for the coming months, because an even bigger federal budget showdown is looming. The government must increase its $16.4 trillion borrowing limit by around late February or risk defaulting on its debt. Republicans will likely demand deep spending cuts as the price of raising the debt limit.

Friday’s report did point to some weakness in the job market. For example, the number of unemployed actually rose 164,000 to 12.2 million. Approximately 192,000 people entered the work force last month, but most of them didn’t find jobs.

The unemployment numbers come from a government survey of households; the number of jobs added each month comes from a separate survey of businesses.

A broader category that includes not only the unemployed but also part-time workers who want full-time jobs and people who have given up looking for work was unchanged in December at 22.7 million.

Despite the still-modest job growth, the economy is showing signs of improvement. Layoffs are declining. And the number of people who sought unemployment aid in the past month is near a four-year low. Banks are lending a bit more freely.

The jobs report showed that hourly pay is staying slightly ahead of inflation. Hourly wages rose 7 cents to $23.73 last month, a 2.1 percent increase compared with a year earlier. Inflation rose 1.8 percent over the same period.

The once-depressed housing market is recovering. A measure of U.S. service firms’ business activity expanded in December by the most in nearly a year. And Americans spent more in November. Consumer spending drives nearly 70 percent of economic growth.

Manufacturing is getting a boost from the best auto sales in five years. Car sales jumped 13 percent in 2012 to 14.5 million. And Americans spent more at the tail end of the holiday shopping season, boosting overall sales that had slumped earlier in the crucial two-month period.

“There is little doubt that the seeds of faster growth are being planted,” James Marple, an economist at TD Bank, said in a note to clients.

But most economists expect little improvement in hiring this year. A 2 percentage point cut in the Social Security tax expired Jan. 1. That means a household with income of about $50,000 will have about $1,000 less to spend. And the government will may impose spending cuts this year.

Both the higher taxes and spending cuts, along with uncertainty about future budget fights, could restrain growth and hiring.

That “likely means acceleration in the labor market will remain elusive for the time being,” said Ellen Zentner, an economist at Nomura Securities.

Don Brown, chief executive of Arteriocyte, a medical device maker, plans to hire more people this year. But he is worried about potential cuts in government spending that could cut into his Cleveland-based company’s revenue.

One such cut is a 2 percent reduction to the reimbursements Medicare provides to doctors and hospitals. It was delayed temporarily as part of the agreement this week. If that cut is implemented later this year, it would lower revenue for the hospitals and surgeons that buy his company’s advanced products.

“Our entire customer base is unsure about what their reimbursement landscape is going to be,” Brown said.

The Obama administration’s health care reform also imposed a 2.2 percent sales tax on medical devices. Brown estimates that will cost the company $400,000. He had hoped that tax would be eliminated as part of the fiscal cliff talks.

Arteriocyte hired 10 new workers last year and now employs 76 people. The new hires included research scientists, two marketing specialists, and a sales representative. The company hopes to make five to 10 additional hires this year, but may not be able to do so if the Medicare cut occurs.