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The Employment Situation, December

The labor market created a mere 18,000 jobs in December, falling well below expectations, as well as November's upwardly-revised 115,000 figure. The December report was the weakest since August of 2003, and the unemployment rate increased to 5.0 percent from 4.7 percent in the previous month. However, the average monthly job gain for the fourth quarter stands at 97,000, which is still better than the third quarter's average of 77,000, and indicates moderate growth.

The Current Account and the Real Broad Dollar Index

Large contributors to December's weakness were construction (-49,000 jobs), manufacturing (-31,000), and retail trade (-25,000). These losses reflect the continuing housing downturn and the cautious retail environment. All three of these sectors, especially construction, worsened considerably since November's report. Residential construction, for example, lost 28,000 jobs, compared to November's loss of 8,000. Nonresidential construction also suffered, losing 17,000. Within the manufacturing sector, the lone job creators were food manufacturing, machinery, and chemicals. Among the subsectors struggling the most were computer and electronic products; motor vehicles and parts; and plastics and rubber products.

Services were the bright spot in the report, adding 93,000 jobs. Professional business services (43,000), education and health services (44,000), and government (31,000) were the strongest contributors within the category. All three of these sectors have been relatively consistent pillars of job growth in 2007. Management and technical consulting services added 12,300 jobs, and architectural and engineering services added 7,500. Leisure and hospitality also fared particularly well, with food services and drinking places adding 26,600 jobs, and healthcare adding 27,900. Although services created the most jobs in December, this month's growth in the sector fell far short of that in November (160,000), as well as the year's monthly average for services (142,000).

Labor Market Conditions

Average monthly change(thousands of employees, NAICS)
2004 2005 2006 2007 YTD December 2007
Payroll employment 172 212 189 111 18
Goods-producing 28 32 9 -31 -75
Construction 26 35 11 -16 -49
Heavy and civil engineering 2 4 2 -1 -2
Residentiala 9 11 -2 -8 -28
Nonresidentialb 3 4 6 0 -17
Manufacturing 0 -7 -7 -18 -31
Durable goods 8 2 0 -12 -20
Nondurable goods -9 -9 -6 -5 -11
Service-providing 144 180 179 142 93
Retail trade 16 19 -3 4 -24
Financial activitiesc 8 14 16 -2 -4
PBSd 38 57 42 26 43
Temporary help services 11 18 -1 -4 0
Education and health services 33 36 41 47 44
Leisure and hospitality 25 23 38 30 22
Government 14 14 20 23 31
Local educational services 8 6 11 8 17
Average for period (percent)
Civilian unemployment rate 5.5 5.1 4.6 4.6 5.0
a. Includes construction of residential buildings and residential specialty trade contractors.
b. Includes construction of nonresidential buildings and nonresidential specialty trade contractors.
c. Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector.
d. PBS is professional business services (professional, scientific, and technical services, management of companies and enterprises, administrative and support, and waste management and remediation services.
Source: Bureau of Labor Statistics.
The three-month moving average of private sector employment growth shows a definite declining trend over the past year, and even more broadly over the past two years. This trend discounts the constant positive effect the government sector has had.
Real GDP and Components

December's diffusion index slipped to 48.4, indicating that more industries cut back payrolls than added to them. The last time the index fell below the neutral 50 mark was way back in September 2003.

These numbers overwhelmingly point to a weak December labor market, with almost all sectors worsening from the previous month. However, monthly data are volatile and subject to revision. The Bureau of Labor Statistics revised October's initial 170,000 payroll gain down to 159,000, and November's initial 94,000 was revised up to a gain of 115,000. Payroll gains in November and December are subject to revision in the next report.

Labor Market Conditions and Revisions

Average monthly change(thousands of employees, NAICS)
October current Revision to October November current Revision to November December 2007
Payroll employment 159 -11 115 21 18
Goods-producing -43 -21 -45 -12 -75
Construction -20 -11 -37 -13 -49
Heavy and civil engineering 1.5 2.1 -2.1 2.4 -2
Residentiala -13.7 -4.1 -9.9 -2.7 -28
Nonresidentialb -3.3 -1.3 -2.4 -1.7 -17
Manufacturing -23 -8 -13 -2 -31
Durable goods -17 -8 -2 -1 -20
Nondurable goods -6 0 -11 -1 -11
Service-providing 202 10 160 33 93
Retail trade -20.4 -5.4 32 8 -24
Financial activitiesc -2 0 -16 4 -4
PBSd 70 6 39 9 43
Temporary help services 22.9 -4.9 11.6 0.3 0
Education and health services 49 5 29 1 44
Leisure and hospitality 47 1 35 9 22
Government 49 11 28 -2 31
Local educational services 35.3 5.2 9.6 -0.2 17
a. Includes construction of residential buildings and residential specialty trade contractors.
b. Includes construction of nonresidential buildings and nonresidential specialty trade contractors.
c. Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector.
d. PBS is professional business services (professional, scientific, and technical services, management of companies and enterprises, administrative and support, and waste management and remediation services.
Source: Bureau of Labor Statistics.

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