WASHINGTON – The nation's unemployment rate dropped to 5.7 percent in December, the lowest level in 14 months, as frustrated jobseekers gave up their searches with hiring at a near standstill.
The anemic report, released Friday by the Labor Department (search), raised new fears about the strength of an economic recovery that is producing so few new U.S. jobs. Businesses overall added just 1,000 new American jobs last month, the department reported, far fewer than economists had expected.
"Take your pick: awful, sobering, pathetic," lamented Bill Cheney, chief economist at John Hancock Financial Services.
The 5.7 percent jobless rate, down 0.2 percentage point from November, was the lowest since October 2002. The decline didn't reflect new hiring, but frustrated workers, almost 310,000, who left the labor force. The government's rate counts only people actively seeking work.
"The rate is going down, but it is going down for the wrong reasons," Cheney said. "That doesn't make you feel really good about the state of the jobs market."
The report halted Wall Street's 2004 rally, sending stocks sharply lower as investors cashed in profits from the market's recent advance. The Dow Jones industrial average closed down 133 points and the Nasdaq was down 13 points.
Job growth is expected to be a key issue as November's presidential election nears. The economy has lost about 2.3 million jobs since President Bush took office.
Bush seized on the lower jobless rate as reason to be optimistic about the economy.
"We want more people still working," the president said at a small business forum. "But nevertheless, it is a positive sign that the economy is getting better."
"Neither business nor potential employees have confidence in the economy," said Sung Won Sohn, chief economist at Wells Fargo & Co.
Analysts are looking for monthly payroll gains of 300,000 or more for sustained job growth, and the economy remains far from that mark. December marked the fifth consecutive month of payroll gains, however slight.
Businesses are being "squeezed by intense competition" from other countries and are holding down costs by working their existing employees harder, hiring temporary workers or shipping jobs overseas, Sohn said.
For example, blue jeans-maker Levi Strauss & Co. (search) closed its last two U.S. sewing plants Thursday. About 800 workers at the 26-year-old San Antonio plants lost their jobs.
Weak holiday hiring by retailers and continued job losses in the nation's factories held back overall job gains in December.
Businesses have added just 277,000 new jobs since July, the report showed, cutting earlier estimates of growth in October and November.
The jobs market "is now much slower to react to the performance of the economy," which is undergoing structural changes through technology, productivity and increased outsourcing overseas, said John Challenger, chief executive officer of Challenger, Gray and Christmas (search), an employment research and recruiting firm.
He doesn't think another hiring boom will occur until the next economic cycle, sometime near 2008.
"Temporary jobs, the category with the most consistent growth, is not the kind of job to build a strong economy around," Challenger said.
Employment in the nation's stores, malls and even gas stations dropped by 38,000 last month, and manufacturing continued a 41-month slide by losing 26,000 jobs.
The nation's factories have been on life support, and the sector shed about a half-million jobs in 2003.
The federal and state governments also reduced their payrolls last month, as did banks and mortgage companies, reflecting the uptick in mortgage interest rates.
Some areas of the economy added jobs last month. Employment continued to rise in the services sector in temporary employment services, education and health care. Construction companies also added to their payrolls.
To find jobs, people are having to make concessions such as lower pay or relocating, said Dale Klamfoth, regional vice president of DBM, a career counseling and job placement company.
They're having to "compromise and be a lot more flexible about compensation, locations and positions," he said.