The U.S. economy rounded out a third year of job gains with another month of employment growth in December, sending the strongest signal yet that it kept expanding even as the budget fight intensified.
Payrolls rose by 155,000 workers last month following a 161,000 advance in November, Labor Department figures showed Friday in Washington. The unemployment rate held at 7.8 percent after the November figure was revised up from a previously reported 7.7 percent.
“Despite concerns about the fiscal cliff, businesses were running so tight on labor that even a modest increase in demand forced them to hire,” said Russell Price, a senior economist at Ameriprise Financial Inc. (NYSE: AMP) in Detroit, and the best payrolls forecaster over the past two years, according to data compiled by Bloomberg. “As long as Washington is able to resolve many of the issues that remain on the table, the economy should get much stronger.”
The increase in hiring was supplemented by bigger-than-projected gains in wages and the workweek that will give households the means to sustain spending, benefiting retailers from Macy’s Inc. (NYSE: M) to Gap Inc. (NYSE: GPS). The improving jobs picture also puts the world’s largest economy in a better position to overcome the next hurdle: the confrontation over the nation’s debt limit.
“By the second quarter, we could see the pace of payrolls at 175,000 to 200,000,” provided the debt-ceiling debate is resolved, said Price.
Stocks rose, sending the Standard & Poor’s 500 Index up 4.6 percent for the week to the highest level since December 2007. The gauge climbed 0.5 percent to 1,466.47 at the close in New York. The weekly advance was the biggest since December 2011.
The S&P 500 soared 2.5 percent on Jan. 2 after Republicans and Democrats agreed on a compromise budget that avoided the so- called fiscal cliff of sweeping tax increases slated to take effect this year. Next, Republican leaders in the House are vowing to exact deep spending cuts from President Barack Obama and the Democrats in exchange for raising the debt ceiling as the U.S. Treasury bumps up against its legal borrowing limit.
Other reports Friday showed service industries, which account for almost 90 percent of the economy, grew in December at the fastest pace in 10 months, and demand for capital equipment such as machinery and communications gear picked up in November.
The news elsewhere was less positive. U.K. services unexpectedly shrank in December for the first time in two years, clouding the economic outlook as Britain struggles to avoid a recession, figures from Markit Economics and the Chartered Institute of Purchasing and Supply showed Friday in London.
The increase in U.S. employment was in line with the 152,000 median estimate of 82 economists surveyed by Bloomberg. Projections ranged from increases of 80,000 to 305,000. Revisions to prior reports added a total of 14,000 jobs to payrolls in November and October.
For all of 2012, the economy created 1.84 million jobs, matching the gain in 2011. It’s the best back-to-back reading since 2005-2006.
Nonetheless, the increases probably don’t satisfy Federal Reserve policy makers, who last month said they will keep pumping money into the economy until the job market improves “substantially.”
Central bankers on Dec. 12 expanded a third round of so-called quantitative easing and said they would hold their target interest rate low “at least as long” as the unemployment rate remains above 6.5 percent and inflation projections are for no more than 2.5 percent.
“News on the unemployment rate was not quite as good as other parts of the report,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who accurately projected the December payrolls figure. “The Fed has the green light to continue with its quantitative easing.”
The jobless rate for all of 2012 was 8.1 percent, the lowest annual average in four years.
Friday’s report also showed hourly earnings climbed 0.3 percent on average in December for a second month to $23.73, beating the median forecast of economists surveyed by Bloomberg that called for a 0.2 percent increase. They rose 2.1 percent from December 2011, the biggest gain in a year. Additionally, the work week climbed six minutes to 34.5 hours.
Payroll gains were broad-based with construction firms, manufacturers, health care companies and restaurants all adding staff in December.
Rod Prince landed a new position last month as a senior database administrator for Sausalito, Calif.-based Glassdoor, a jobs and career website. In the four weeks leading up to his hiring, Prince said he received phone calls about six different openings.
“I now feel pretty confident,” said Prince, 59. “I don’t have to pinch money. I feel the economy is doing better.”
In managing databases for Glassdoor, Prince said that job listings are “accelerating quite significantly.”
Factory payrolls increased by 25,000, the most since March, Friday’s report showed. Employment at private service-providers increased 109,000.
Winnebago Industries Inc. (NYSE: WGO), a Forest City, Iowa-based maker of motor homes, was among companies expanding to increase production. It hired about 160 people, or 12 percent more hourly employees, in the quarter ended Dec. 1.
“We’re still supplementing by working overtime in many, many areas of the company,” Sarah Nielsen, chief financial officer, said on a Dec. 20 earnings conference call. “That’s been a factor for the last six months plus. And we’re going to have to continue to hire to support attrition.”
Orders for non-defense capital equipment excluding aircraft, a proxy for future business investment, climbed 2.6 percent in November after rising 3 percent in October, figures from the Commerce Department also showed Friday. Total factory bookings were little changed at $477.6 billion, depressed by a drop in non-durable goods that probably reflected lower costs for petroleum and other fuels.
The jobs report showed construction companies added 30,000 workers, the most since September 2011. The figures may have received a boost from rebuilding efforts following superstorm Sandy, which left about 8 million homes and businesses without power for days after making landfall on Oct. 29.
A report from the Tempe, Ariz.-based Institute for Supply Management Friday showed its index of non-manufacturing industries climbed to 56.1 last month, the highest level since February, from 54.7 in November. Economists projected the gauge would drop to 54.1, according to the median estimate in a Bloomberg survey. Readings above 50 signal expansion.
Progress in the labor market is driving Americans’ confidence and spending. Macy’s, the second-biggest U.S. department-store company, reported a 4.1 percent rise in December sales at stores open at least a year, while Gap, the largest U.S. specialty-apparel retailer, had a 5 percent increase.
Some chief executive officers, including David Cote of Honeywell International Inc. (NYSE: HON), are urging lawmakers to move quickly on the debt talks to prevent the economy from backsliding.
A plan is needed “that will truly help to expand the U.S. economy over the long term,” Cote, who leads the maker of flight controls and thermostats, said in a Jan. 2 emailed statement.
“We’re in the same old fight with uncertainty still in the market,” said Brad Thompson, CEO of employee-owned Columbia Forest Products Inc., the largest North American maker of decorative hardwood plywood.