December's Labor Report Shows Economy Responded Well to Fiscal Cliff Negotiations

The unemployment rate for December stayed below 8% for the fourth month in a row. The Bureau of Labor reported that the economy added 155,000 jobs and the unemployment rate was 7.8%. The manufacturing and construction industry had their biggest gains in months. Construction added 30,000 jobs the biggest gain in 15 months and manufacturing added 25,000 jobs the largest gain in 9 months.

The ADP National Employment Report said the private sector added 215,000 jobs and small businesses created 25,000 jobs. Carlos A. Rodriguez, president and chief executive officer of ADP said December was the "largest monthly gain since February 2012. During the past year, the private sector added a total of more than 1.7 million jobs." ADP also explained that within the small business sector "companies having between 1-19 employees lost 6,000 while small companies with 20-49 employees gained 31,000."

The Associated Press noted that the economy created 1.84 million jobs in 2012, "an average of 153,000 jobs a month, roughly matching the job totals for 2011." The AP report explained that while the growth in construction and manufacturing jobs, as well as the overall December performance were encouraging signs that the economy reacted well to the fiscal cliff "hiring isn't strong enough to quickly reduce still-high unemployment."

AP noted that construction am manufacturing were not the only sector showing gains. Professional, business, and financial services added 28,000 jobs, health care added 55,000 and restaurants and bars added 38,000, while public sector and retail jobs shrunk by 13,000 and 11,300, respectively.

The December report showed that layoffs have declined and applications for unemployment this month were at a four-year low, however the "number of unemployed actually rose 164,000 to 12.2 million." Paul Ashworth, chief U.S. economist with Capital Economics told CNN, "the overall picture is that the labor market remains lackluster."

Unemployment is now back to where it was when President Obama assumed office in 2009. The difference is that at that point we were losing 800,000 jobs a month and now the economy is adding jobs. While the growth has been anemic, it does represent progress and a 1 million-job turnaround in performance.

The December unemployment report comes on the heels of the first step in avoiding the fiscal cliff. The outgoing Congress approved a tax package that raises taxes on all individuals earning more than $400,000 and made permanent the Bush tax cuts for those earning less than $400,000. The new Congress will have to tackle the rest of the fiscal cliff (e.g. the debt ceiling and mandatory spending cuts brought on by sequestration).

So far the economy has responded well to the fiscal cliff. AP explained, "the stable hiring last month shows that employers didn't panic during the high-stakes talks." CNN noted that one bright spot in the report was "that average hourly earnings rose 2.1% in 2012."