US unemployment: Rate falls to 5.6%, lowest in 6.5 years

Job gains strongest in professional and business services

WASHINGTON: The United States unemployment rate fell to 5.6% in December, the lowest in six and a half years as the country capped its best year for job creation since 1999.

Together with upward revisions of the previous two months, December rounded out the best year for job generation in 15 years, with almost 3 million net new jobs added.

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 labour market, almost totally reversed the previous month’s surprise gain. Hourly earnings were up just 1.7% 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 pay checks,” 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.

“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.

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.

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.

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 lift-off, 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 per cent, and the dollar slipped to $1.1842 to the euro. The five-year Treasury yield meanwhile fell to 1.44 per cent from 1.48%, suggesting the markets expect a slower march toward a rate hike than previously anticipated.

Published in The Express Tribune, January 11^th, 2015.

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