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The Honolulu Advertiser
Posted on: Saturday, January 7, 2006

Jobless rate dips below 5 percent

By Courtney Schlisserman
Bloomberg News Service

WASHINGTON U.S. employers added 108,000 workers in December, capping a year in which the economy shook off the effects of hurricanes and surging energy prices to gain more than 2 million jobs.

The unemployment rate fell to 4.9 percent from 5 percent and labor costs rose, the Labor Department said yesterday in Washington. The December gain followed figures showing 71,000 more jobs than first reported for November and October.

The U.S. gained workers each month in 2005. President Bush, whose approval ratings sank last year, and his economic advisers fanned out to 19 states to say the labor market shows his policies are working. Business spending and job growth may aid the economy in 2006 as higher interest rates slow the housing market, economists said.

"We're carrying firm momentum into 2006, which is likely to be sustained over the course of the year," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

December's increase was less than the 200,000 median forecast of 62 economists in a Bloomberg News survey. The number of jobs in November was revised up 305,000 from the 215,000 the government first reported. October's figure was lowered, leaving the net of 71,000 more jobs for those two months.

"It's pretty darn close to the consensus number" once all the revisions are considered, DeKaser said.

The average hourly wage rose 3.1 percent last year, the biggest increase since 2002, and 0.3 percent for the month. The drop in the unemployment rate and rising wages support Federal Reserve policy makers' concerns that an improving job market may contribute to inflation.

Employers created 2.02 million jobs in 2005, today's report showed. That compares with 2.194 million jobs in 2004, which was the most since 1999.

The unemployment rate, which the department determines through a sampling of households instead of employers, was forecast to hold at 5 percent in the Bloomberg survey.

The 0.5 percentage point decrease in the rate last year was the biggest one-year decline since 1997.

Service industries, which include retailers, banks and government agencies, added 96,000 workers last month after a 252,000 gain November. Manufacturers added 18,000 in December, the most since August 2004, compared with 8,000 a month earlier. The median forecast was for factory jobs to be unchanged.

"Retailers and construction companies just weren't hiring last month," said Richard Yamarone, chief economist at Argus Research Corp. in New York, who had the lower payroll estimate in the Bloomberg survey at 130,000. "Retailers did less hiring this holiday season."

Retailers lost 15,600 jobs last month, after increasing by 12,700 in November. Employment at construction firms, which surged after the hurricanes, declined by 9,000 last month, the biggest drop since February 2003.

The Federal Reserve is forecast to raise its benchmark interest rate this month for the 14th time since June 2004, part of its effort to control inflation as the economy and labor market strengthen.