Why 6.7 percent unemployment isn't good news

The US unemployment rate dropped to the lowest level since 2008, partly because many unemployed have stopped looking for work. Only 74,000 new US jobs were created in December.

U.S. employers added a scant 74,000 jobs in December, the fewest in three years. The disappointing figure ends 2013 on a weak note and raises questions about whether the job market can sustain its recent gains.

The Labor Department said Friday that the unemployment rate fell from 7 percent in November to 6.7 percent, the lowest level since October 2008. But the drop occurred mostly because many discouraged Americans stopped looking for jobs. Once people without jobs stop looking for one, the government no longer counts them as unemployed.

It's unclear whether the sharp hiring slowdown might lead the Federal Reserve to rethink its plan to slow stimulus efforts. The Fed decided last month to pare its monthly bond purchases, which are designed to lower interest rates.

"I don't think the Fed is going to be panicked by this," said Joel Naroff, president of Naroff Economic Advisors.

Naroff suggested that the 6.7 percent unemployment rate — a drop of more than a full percentage point since 2013 began — will eventually lead many employers to raise wages.

"It doesn't change what they're thinking," Naroff said of the Fed.

Some economists said they want to see more data before concluding that the economy has lost momentum.

"We stop short of making larger observations based on this number," said Dan Greenhaus, chief global strategist at brokerage firm BTIG. "The economy, based on any number of other indicators, has been picking up steam of late which makes today's number..curious."

Some analysts noted that the government revised up its estimate of job growth in November by 38,000 to a robust 241,000.

Cold weather might have slowed hiring in December. Construction firms cut 16,000 jobs, the biggest drop in 20 months.

Still, December's hiring is far below the average gain of 214,000 jobs a month in the preceding four months. Monthly gains averaged 182,000 last year, nearly matching the previous two years.

The proportion of people working or looking for work fell to 62.8 percent, matching a nearly 36-year low.

Many industries posted weaker gains or cut jobs. Health care cut 6,000 positions, the first cut in 10 years. That could raise questions about the impact of President Barack Obama's health care reform. Transportation and warehousing cut a small number of jobs, suggesting shippers hired fewer workers for the holidays. Government cut 13,000. The motion picture industry shed 14,000 jobs.

One bright spot was manufacturing. Factories added 9,000 positions, the fifth straight gain. Still, that's down from 31,000 in November. Retailers added 55,000 jobs.

Recent data have painted a picture of an economy on the steady rise. Exports hit a record level in November, lowering the U.S. trade deficit. Businesses have ordered more manufactured goods. Auto sales reached a six-year high in 2013.

Analysts now estimate that the economy expanded at a healthy annual rate of 3 percent to 3.5 percent in the October-December quarter. That's up from earlier forecasts of a 2 percent rate or less. It would follow a strong 4.1 percent growth rate reported for the July-September quarter.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.