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US job market shrugs off fears of 'fiscal cliff'

Sunday - 1/6/2013, 11:32am  ET

In this Wednesday, Dec. 12 2012 photo, Taneshia Wright, of Manhattan, fills out a job application during a job fair in New York. U.S. employers added 155,000 jobs in December, a steady gain that shows hiring held up during the tense negotiations to resolve the fiscal cliff. The solid job growth wasn’t enough to push down the unemployment rate, which remained 7.8 percent last month, the Labor Department said Friday, Jan. 4, 2013. The rate for November was revised up from an initially reported 7.7 percent. (AP Photo/Mary Altaffer)

CHRISTOPHER S. RUGABER
AP Economics Writers

WASHINGTON (AP) -- The U.S. job market proved resilient in December despite fears that a budget impasse in Washington would send the economy over the fiscal cliff and trigger growth-killing tax hikes and spending cuts.

Employers added 155,000 jobs last month, roughly matching the solid but unspectacular monthly pace of the past two years.

The gains announced Friday weren't enough to reduce unemployment, which remained a still-high 7.8 percent. The November rate was revised up a notch from the 7.7 percent the government had originally reported.

The stable pace of December hiring suggested that many employers tuned out the fracas in the nation's capital. The threat wasn't averted until a deal won final passage on New Year's Day.

Rather than hold back until the fiscal cliff was resolved, many employers kept hiring, most likely in anticipation of higher customer demand.

"What would hiring have been if we had not been facing the fiscal cliff in December?" said Robert Kavcic, senior economist at BMO Capital Markets. "We might have seen quite a bit stronger job growth" -- something closer to 200,000 a month.

That's an encouraging sign for the job market, because an even bigger budget showdown is looming: Congress must vote to raise the government's $16.4 trillion borrowing limit by late February. If not, the government risks defaulting on its debt. Republicans will likely demand deep spending cuts as the price of raising the debt limit.

Robust hiring in construction and manufacturing drove last month's job increases. Construction firms added 30,000 jobs, the most in 15 months. In part, that increase likely reflected hiring needed to rebuild from Superstorm Sandy. And the housing market's gradual recovery has energized homebuilding. Manufacturers added 25,000 jobs, the most in nine months.

Economists found other hopeful news in the report. Americans were given more work hours in December -- an average 34.5 hours a week in December, up from 34.4 in November. And their pay outgrew inflation. Hourly wages rose 7 cents to $23.73 last month, a 2.1 percent increase compared with a year earlier. Over the same period, inflation rose 1.8 percent.

"Perhaps (the) underlying economic performance is accelerating, and even Washington can't screw it up," said Dan Greenhaus, chief global strategist at BTIG.

One company that hired last year and would like to add more jobs in 2013 is Arteriocyte, a Cleveland-based stem-cell therapy and medical device company. But CEO Don Brown is concerned about potential cuts in government spending, which he says could erode Arteriocyte's revenue.

One such cut is a 2 percent reduction in the reimbursements Medicare gives doctors and hospitals. That reduction was delayed by the budget deal reached this week. If the reimbursement cut is imposed later this year, it would lower revenue for the hospitals and surgeons that buy Arteriocyte's advanced products.

"Our entire customer base is unsure about what their reimbursement landscape is going to be," Brown said.

The Obama administration's health care reform law also imposed a 2.2 percent sales tax on medical devices. Brown estimates that will cost his company $400,000. He had hoped the tax would be eliminated as part of a fiscal cliff agreement.

Arteriocyte hired 10 workers last year and now employs 76. The new hires included research scientists, two marketing specialists and a sales representative. Brown hopes to make five to 10 additional hires this year, but he might be unable to do so if the Medicare cut takes effect.

Despite last month's hiring gains, Friday's report pointed to some weakness in the job market. For example, the number of unemployed actually rose 164,000 to 12.2 million. About 192,000 people entered the work force last month, but most did not find jobs.

The unemployment numbers come from a government survey of households. The number of jobs added comes from a separate survey of businesses.

A broader category that includes not only the unemployed but also part-time workers who want full-time jobs and people who have given up looking for work was unchanged in December at 22.7 million.

The government revised up its estimates of job growth for October and November by 14,000 jobs. October's job increases were revised down from 138,000 to 137,000 but November's were revised up from 146,000 to 161,000.

Economists said the pace of hiring almost certainly isn't strong enough to lead the Federal Reserve to cut short its bond-buying program. The Fed is spending $85 billion a month on bond purchases to try to drive down long-term borrowing costs and stimulate economic growth.

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