Growth noses upward, but hiring doesn't

WASHINGTON — Disappointing employment data Friday illustrates the challenge ahead for the U.S. economy: Growth is picking up but isn't yet sparking new hiring, and that could keep consumer sentiment in the dumps and slow the recovery.

Employers cut 85,000 non-farm payroll jobs last month, the Labor Department reported, far more than the 8,000 to 10,000 losses that economists had expected.

However, the unemployment rate held steady at 10 percent in December, and statisticians revised November's job numbers to show positive growth. After first reporting that employers had shed 11,000 jobs in November, the Bureau of Labor Statistics said Friday that they'd added 4,000 jobs that month. That's the first job growth since December 2007, the month that the deep recession began. Total job losses since then have exceeded 7.2 million.

December's job numbers dashed hopes that a return to significant hiring is near.

"The job market took a step back in December. Businesses are curtailing their layoffs, but they have yet to begin hiring, as they struggle to get credit and lack the confidence to expand their operations," said Mark Zandi, the chief economist for Moody's, a forecaster in West Chester, Pa. "The decline in employment was a bit overstated, as cold December weather weighed on construction and leisure and hospitality jobs."

Many economists recently revised their growth projections for the last three months of 2009 upward to around a 4 percent annual rate, and most think that the U.S. economy is rebounding. The latest jobs data suggested as much, sustaining the recent trend of moderating losses in key sectors.

Manufacturers shed only 27,000 jobs in December. Professional and business services added 50,000 jobs, on top of 86,000 in November. That points to a clear rebound in white-collar employment. Temporary employment also increased in December, by 47,000 jobs, sustaining a growth trend that began in July. Traditionally, employers offer temp jobs before they hire full time, to delay incurring all the costs associated with employee benefits.

Still, the broader service sector, vital to an economy that's no longer driven primarily by manufacturing, continues to disappoint. Harvard University economist Kenneth Rogoff said that until the service sector makes a firm recovery, the unemployment rate will remain high.

"I don't see it just racing down to 5 percent in two years," he said. He projects sluggishness well into next year. "I suspect that even if we have a boost for a while, we'll end up stalling."

Christina Romer, the head of the White House Council of Economic Advisers, emphasized the positive in Friday's decidedly mixed report.

"Revised data now show that employment increased 4,000 in November. This is obviously welcome news and the first employment increase in 23 months. Compared with the unexpectedly good report for November, December's job loss is a slight setback," she said in a statement.

What happens in the job market weighs heavily on consumer sentiment. Various measures continue to show consumers lying low, but Bernard Baumohl, the chief global economist for the Economic Outlook Group, an advisory firm, saw reason for hope.

"There is no question the employment outlook is improving. So is household income, which is linked to employment. Personal income has risen five months in a row to the highest level in more than a year," he wrote in a note to investors. "Wages and salaries have climbed for eight consecutive months, with the latest figure rising to the highest of any month last year."

However, Friday's report also pointed to continued structural deterioration in the U.S. labor market. Four in 10 unemployed Americans — 6.1 million of the 15.3 million jobless workers — have been without jobs for 27 weeks or more, the BLS said, adding that the number of people exiting the work force also increased in December.