US sheds 85,000 jobs in December, dampening optimism

The US economy lost 85,000 jobs in December while the unemployment rate held at 10.0 percent, the government said Friday in a report dashing hopes of a turnaround in the ailing labor market.

The Labor Department report on nonfarm payrolls was a disappointment to those hoping for growth in jobs, which is critical to recovery from recession.

The figure was far worse than the consensus expectation for no change in overall employment levels, and came amid a wide array of predictions ranging from steep losses to modest gains.

The unemployment rate meanwhile was in line with expectations, remaining near its highest level since the 1980s.

In revising data for prior months, the data showed a net gain of 4,000 jobs in November instead of a loss of 11,000 previously reported, the first positive month after 22 months of losses.

But the agency also revised its October estimate to show a loss of 127,000 jobs in October instead of 111,000.

"We're getting a steady but very slow improvement in the job market," said Robert MacIntosh, economist at Eaton Vance.

"We are going to have to get used to a frustratingly high unemployment rate."

Cary Leahey, senior economist at the research firm Decision Economics, called the data "disappointing" and consistent with a still-sluggish economy.

"The labor market is struggling and is stuck in the water," he said.

"You are seeing gains in output and manufacturing because of liquidation of inventories... but we haven't seen a decisive turn in the labor market."

Robert Brusca at FAO Economics said however the market is healing, and that the losses were probably due to bad weather and government cuts.

"Pessimists are out in force, but the good trends remains in place," he said.

"You cannot take each monthly jobs report as though it is an authentic change in trend or speed. In fact most of the good stuff is still underway."

The December report showed the goods-producing sector shed 81,000 jobs including 27,000 in manufacturing and 53,000 in construction.

The services sector lost a modest 4,000 jobs, with a loss of 10,000 in retail offset by gains in education, health care and professional services.

Government sector employment fell by 21,000 in the month.

Average hours worked, sometimes seen as a proxy for economic activity, was unchanged in December. Average hourly earnings meanwhile rose 0.2 percent.

The civilian labor force fell by 661,000 in the month, suggesting that more people are stopping their search for employment.

"The unchanged unemployment rate of 10 percent understates labor market slack, since labor force participation fell sharply," said Sophia Koropeckyj at Moody's Economy.com.

"Accordingly, the broader measure (of unemployment) increased to 17.3 percent," she said.

The Labor Department data showed that for all of 2009, employment dropped by 3.0 percent, the worst since 1949. The economy lost 4.6 million jobs for the year, the most since data collection began in 1939.