Household Survey - The unemployment rate held steady at 10.0% in December.  The average jobless rate for 2009 is 9.3% vs. 5.8% in 2008.  The October jobless rate was revised to 10.1% following annual revisions, which is a new cycle high reading; it was previously reported as 10.2%.  The broader measure of unemployment which includes the number looking for working, discouraged workers, and those seeking full-time employment but able to find only part-time employment rose to 17.3% from 17.2% in November.  The cycle high is 17.4% in October 2009. 

The labor force fell 1.07% from a year ago, the largest decline since June 1951.  The participation rate and employment-population ratio continue to show a downward trend (see chart 2).  The employment-population ration fell to 58.2 in December from 58.5 in the prior month.  As the economy moves along the recovery path, folks who have left the labor force will gradually resume hunting for employment, which is most likely to keep the jobless rate at an elevated level.

Part-time employment in the non-agricultural sector for economic reasons has declined in the November-December months (see chart 3), bringing down part-time employment as a percent of the labor force to 5.92% from 5.95% in October. 

Establishment Survey - Non-farm payrolls declined 85,000 in December, after a revised gain of 4,000 jobs in November.  The revisions of October-November data result in a net loss of 1,000 jobs.  The bulk of the loss in employment was in the goods sector (-81,000), while the services sector recorded a loss of 4,000 jobs.  A total of 7.242 million jobs have been lost since the recession commenced in December 2007. 

Highlights of job losses/gains in December:

Construction: -53,000 vs. -27,000 in November
Manufacturing: -27,000 vs. -35,000 in November
Services: -4,000 vs. +62,000 in November
Retail trade employment: -10,000 vs. -14,000 in November 
Professional and business services: +50,000 vs. +89,000 in November
Temporary help: +46,500 vs. +55,200 in November
Financial activities: +4,000 vs. -6,000 in November
Health care employment: +21,500 vs. +19,100 in November

The workweek for the economy (33.2 hours) and the factory sector (40.4 hours) were unchanged in December.  Overtime hours at factories held steady at 3.4 hours.  The manufacturing man-hours fell 0.4% in December, which implies that a mild decline in industrial production during December is possible. 

Average hourly earnings rose 3 cents to $18.80, putting the year-to-year increase as 2.17%.  The decelerating trend of the year-to-year change in hourly earnings lowers expectations of an inflationary threat in the near term.  The earnings and payroll numbers suggest a small increase in the wage and salary component of personal income in December. 

Conclusion - The details and tone of the December employment report indicate that labor market conditions remain bothersome.  A meaningful pace of hiring is unlikely in the next few months given the structural unemployment in the economy, the shortened workweek, and large number of part-time workers.  In other words, the December employment report reinforces expectations of the FOMC on hold in the near term. 

The FOMC will need to ensure that a self-sustained economic recovery in underway before it can tighten monetary policy and justification for its actions in the current politically charged environment has to be rock solid.  Therefore, the Fed is unlikely to undertake a reduction of monetary accommodation until the unemployment rate has peaked.  In the jobless recoveries following the 1990-91 and 2001 recessions, the Fed waited it was abundantly clear that the unemployment rate had peaked before implementing a tightening of monetary policy, despite gains of real GDP for several quarters.  The unemployment rate peaked at 7.8% in June 1992 and the Fed raised the federal funds rate only in February 1994 when the unemployment rate has declined to 6.6%.  After the 2001 recession, the Fed held the funds rate at 1.00% between June 2003 and June 2004 during which period the unemployment had dropped to 5.6% from 6.3%.