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Unemployment rate drops, but jobs number falls short ; More people give up on looking for work

The U.S. economy is steadily adding jobs, but still just barely enough to keep up with the growth of the work force. The weakness underscores the nation's struggle to get back to something resembling normal employment.

The economy added 103,000 jobs in December, a figure that fell short of what most economists had projected. The unemployment rate did come down, to 9.4 percent from 9.8 percent, in part because people gave up looking for work.

"The labor market ended last year with a bit of a thud," Ryan Sweet, an economist at Moody's Analytics, said after the Labor Department released its monthly jobs report Friday. He said the drop in unemployment wasn't likely to be sustained.

Over the past three months, the economy has added an average of 128,000 jobs a month -- just enough to keep up with population growth. Nearly twice as many generally are needed to significantly reduce the unemployment rate.

All told, employers added 1.1 million jobs last year, or about 94,000 a month. The nation still has 7.2 million fewer jobs today than it did in December 2007, when the recession began.

Some economists predict that the nation will create twice as many jobs this year as it did last year. They note that people who still have jobs are not as worried about losing them as they might have been a year ago and that people are spending more. A rebound in retail sales probably means businesses will hire more people.

Economists also expect that a tax cut that took effect this month -- a reduction in the amount taken out of workers' paychecks to pay for Social Security -- also will lead Americans to spend more this year.

"The conditions are in place to get pretty good job growth this year," said John Canally, an economist at LPL Financial. "The payroll tax cut is in place; exports are booming; and banks are lending again."

But even if hiring picks up, the damage from the recession, which officially ended 18 months ago, will take years to undo.

Federal Reserve Chairman Ben Bernanke told a Senate panel Friday that returning the unemployment rate to a more normal level of 6 percent could take five more years. Most economists think unemployment will remain near 9 percent at the end of this year.

"This was a brutal recession we went through," President Obama said in introducing Gene Sperling, Washington insider and veteran adviser, as director of the National Economic Council.

The president said the jobs report showed that the economy is trending in the right direction, but acknowledged that hiring must accelerate.

"We've got a big hole that we're digging ourselves out of," he said.

That's why the economy needs stronger job growth now than after milder recessions.

Hiring has picked up faster this time than after the 2001 recession. In the 1 1/2 years since this recession ended, the economy has added a total of 72,000 jobs. In the same period after the 2001 recession, the nation lost jobs -- more than a million.

And job growth would be even stronger if not for the depressed housing industry and financially ailing state and local governments. Construction firms and local governments shed a total of 36,000 jobs in December.

Those two segments of the economy are "going through a long-term restructuring," said John Silvia, chief economist at Wells Fargo Securities. "That's limiting the overall job gains that you're seeing."

Julia Coronado, an economist at BNP Paribas, said the weakness in construction and state and local government is probably costing the economy 75,000 to 80,000 jobs a month. If those sectors were hiring as much this time, the economy would have added nearly 200,000 jobs last month, instead of just 103,000.

The report provided scant encouragement for the long-term unemployed. The number of people without jobs for six months or more rose for the third straight month, to 6.4 million. The postwar record is 6.7 million, set in May.

Nearly half of the unemployed -- 44 percent -- have been out of work for at least six months. Many are becoming discouraged and giving up on their job searches, a key reason why the unemployment rate fell so far last month.

People out of work are not counted as unemployed unless they're looking for a job. More than a quarter-million people dropped out of the work force last month, accounting for about half the decline in the unemployment rate.

And more people are settling for less work. Nearly 9 million are working part time when they would prefer full-time jobs. The so-called underemployment rate, which counts those workers and people who have recently given up looking, was 16.7 percent in December, down from 17 percent the month before.

The December jobs report contained some positive signs. The economy created more jobs in previous months than the government first estimated. Employers added 210,000 jobs in October, above the previous figure of 172,000. November's total was revised to 71,000, from 39,000.

Still, the unemployment rate has now topped 9 percent for 20 months in a row, the longest such streak on record. And even with last year's job gains, the unemployment rate fell only from 9.8 percent to 9.4 percent.

The disappointing figure for new jobs helped weigh down the stock market.

The Dow Jones industrial average closed down 22 points, or 0.2 percent.

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