Despite concerns about looming tax increases and government spending cuts, U.S. employers added 155,000 jobs in December. Employees also enjoyed slightly faster wage growth and worked longer hours, which could bode well for future hiring.
The job growth, almost exactly equal to the average monthly growth in the last two years, was enough to keep the unemployment rate steady at 7.8 percent, the Labor Department reported Friday. But it was not enough to put a dent in the backlog of 12.2 million jobless workers, underscoring the challenge facing Washington politicians as they continue to wrestle over how to address the budget deficit.
“Job creation might firm a little bit, but it’s still looking nothing like the typical recovery year we’ve had in deep recessions in the past,” said John Ryding, chief economist at RDQ Economics.
“There’s nothing in the deal to do that,” he said, referring to Congress’ Jan. 1 compromise on taxes, “and nothing in this latest jobs report to suggest that. We’re a long way short of the 300,000 job growth that we need.”
If anything, the most visible debt-related options that policymakers are discussing could slow down economic and job growth, which, at its existing pace, would take seven years to reduce the unemployment rate to its pre-recession level. The $110 billion in across-the-board federal spending cuts scheduled for March 1, for example, might provoke layoffs by local governments, military contractors and other companies that depend on federal funds.
A showdown over the debt ceiling, expected in late February, could also damage business confidence, as it did the last time Congress nearly allowed a default on the nation’s debts in August 2011.
“We may be seeing the calm before the storm right now,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, noting that a recent survey from the National Federation of Independent Business found that alarmingly few small companies planned to hire in the coming months.
“Small businesses are wringing their hands in horror at what’s going on in Washington.”
A best case for the economy, many analysts say, would involve a swift and civil congressional agreement that raised the debt ceiling immediately. It would also address the country’s long-term debt challenges, like Medicare costs, without sudden or draconian fiscal tightening this year.
Given the uncertainty over what Congress will do, estimates of the unemployment rate’s path this year vary wildly. The more optimistic forecasts for the end of 2013 predict that unemployment will fall to just above 7 percent, which would be considerably below its most recent peak of 10 percent in October 2009, but still higher than its pre-recession level of 5 percent.
The job gains in December were driven by hiring in health care, food services, construction and manufacturing. The last two industries were probably helped by rebuilding after Hurricane Sandy.
Aside from the wild card of what happens in Washington, some encouraging trends in the economy suggest that businesses have good reason to speed up hiring.
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