"It looks like it's a weather issue - a big drop in construction and a 1,000 drop in transportation. People will focus on the unemployment rate drop and the upward revision to the prior month."
- John Canally, an economist for LPL Financial
In December the Federal Reserve decided to start tapering its monthly asset purchases, citing strong labour market and overall economic improvement. Nevertheless, these comments were refuted by Friday's labour market statistics. The world's largest economy managed to hire the fewest number of employees in almost three years last month, though the setback is likely to be short-lived amid signs of bad weather conditions that negatively affected companies' mood.
The Labor Department said there was registered a 74,000 gain in payrolls in December, following a revised 241,000 increase a month earlier. At the same time, the unemployment rate eased back to 6.7%, due to the fact more people dropped out of the labour force. The main driver, which shows the true picture of what is happening with the job market, is the participation rate, which hit 62.8%, the lowest since 1978.
While some can blame the weather for these unrealistic figures, this is a good reminder that improvement is not going to be a straight line and sometimes it can get bumpy. When it comes to taper implications, December's report is just a small step backwards, and according to the majority of analysts the stimulus programme is likely to be completely withdrawn by the end of this year.
© Dukascopy Bank SA