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Good news! The US unemployment rate fell to 5.6 per cent in December, the lowest level in six and a half years, as the country capped its best year for job creation since 1999.
Commerce department has declared that the economy churned out 252,000 jobs last month. This could be viewed as a fresh sign that the United States is creating more distance with the weakness in Europe and elsewhere.
Together with upward revisions of the previous two months — 50,000 more jobs than previously reported — December capped the best year for job generation in 15 years, with almost three million net new jobs added.
It has helped to push the unemployment rate down 0.2 percentage point from November, representing a sharp fall from 6.7 per cent a year ago, and the 10.0 per cent peak in October 2009.
The job gains were strongest in professional and business services, restaurants and bars, and the construction industry, underscoring the healthy growth in the US services sector, while gains in manufacturing were small.
In addition, the two-notch fall in the unemployment rate was in part due to more people exiting the US workforce. The participation rate in the civilian labor force fell to 62.7 per cent from 62.9 per cent, matching the previous low in the wake of the 2008-2009 Great Recession.
Analysts were critical of the data, saying the sheer number of jobs being generated in recent months will have to show up soon in higher wages.
Jim O’Sullivan of High Frequency Economics, said, it is a matter of time before the (wage) data show more strength.
Most analysts said the strong headline job numbers will keep the Federal Reserve on track to raise interest rates toward the middle of the year, even without signs of inflationary pressure.
The Federal Open Market Committee, the Fed’s policy body, has held rates at a rock-bottom 0-0.25 per cent since the end of 2008 to help the economy recovery.
In mid-December Fed chair Janet Yellen made clear that the first rate hike is likely to take place this year, even though there is no pressure from rising prices to do so.
FTN’s Low also pointed to the likelihood of a rate hike this year. US markets had mixed reactions to the report. The five-year Treasury yield fell to 1.45 per cent from 1.48 per cent ahead of the news, while the dollar was virtually unchanged at $1.1804 to the euro. Wall Street was modestly lower, with the S&P 500 down 0.37 per cent.