U.S. Job Growth Weakest in 3 Years

December employment situation report unemployment rate hiring
Ty Wright/Bloomberg via Getty Images

By Lucia Mutikani

WASHINGTON -- U.S. employers hired the fewest workers in almost three years in December, but the setback was likely to be temporary amid signs that cold weather might have had an impact.

Nonfarm payrolls rose only 74,000 last month, the smallest increase since January 2011, and the unemployment rate fell 0.3 percentage points to 6.7 percent, the Labor Department said Friday. The unemployment rate was the lowest since October 2008 and mostly reflected people leaving the labor force.

The step back in hiring is at odds with other employment indicators that have painted an upbeat picture of the job market. The data showed that 38,000 more jobs were added in November than previously reported.

"It looks like it's a weather issue -- a big drop in construction and a 1,000 drop in transportation. %VIRTUAL-article-sponsoredlinks%People will focus on the unemployment rate drop and the upward revision to the prior month," said John Canally, an economist for LPL Financial in Boston.

Construction employment fell for the first time since May and leisure and hospitality payrolls rose marginally, suggesting that extremely cold weather in some parts of the country had held back hiring. In addition, transportation payrolls recorded their first decline in five months.

There was also a decline in the average workweek.

The smaller survey of households showed 273,000 people stayed at home because of the bad weather, the most since 1977.

Economists polled by Reuters had expected job gains of 196,000 jobs last month. But many pushed up their forecasts in the wake of upbeat labor market data during the week.

U.S. stock index futures trimmed gains on the report, while prices for U.S. Treasury debt rose.

A string of data -- from consumer spending and trade to industrial production -- has suggested the economy ended 2013 on strong footing and is positioned to gain even more strength this year.

More People Leave the Labor Force

The change in the economy's fortunes, which gave the Federal Reserve confidence last month to start dialing back its massive monetary stimulus, reflects waning fiscal uncertainty after lawmakers in Washington agreed on a two-year budget.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one fell 0.2 percentage point to 62.8 percent, the same as in October when the rate fell to its lowest since 1978.

That accounted for two thirds of the drop in the unemployment rate last month, but there was also an increase in household employment.

The U.S. central bank announced in December that it would trim its monthly purchases to $75 billion from $85 billion, and many economists expect it to decide on a similar-sized cut at its next meeting on Jan. 28-29.

Growth this year is expected to top 3 percent, a sharp acceleration from the 1.7 percent forecast for 2013.

Last month, the private sector accounted for all the gains in employment, with government payrolls falling 13,000 after rising 15,000 in November.

Manufacturing employment rose 9,000. While it was fifth straight month of gains, it was a slowdown from November's hefty 31,000 count. The number of construction jobs fell 16,000, snapping six consecutive months of gains.

Employment in the retail sector accelerated after slowing in November. There were also payroll gains in professional and business services.

Average hourly earnings rose two cents. The length of the workweek fell to 34.4 hours from 34.5 hours.

Originally published