U.S. bulls were gored by a very weak jobs report this morning. Although the U.S. Labor Department reported that the unemployment rate fell in December to its lowest level in 14 months, the bad news is that non-farm business payrolls grew by only 1,000.

The unemployment rate fell by two-tenths of a percentage point to 5.7%, the lowest level since October 2002. Economists had expected the unemployment rate to hold steady at 5.9% and for payrolls to grow by 150,000.

This weak payroll growth has economists speculating that the U.S. Federal Reserve may keep interest rates on hold when it meets again.

“Today’s data were surprising, because other economic reports of late — from manufacturing surveys like the ISM index, to weekly jobless claims data, to various activity indicators — have all pointed to firming labour market conditions. But, until the improvement shows up in the key monthly employment report, concerns will persist about a jobless recovery in the United States,” says TD Bank.

BMO Nesbitt Burns calls the data “shockingly weak”, noting that even the household survey showed a 54,000 reduction in jobs, “with the cut in the rate explained by a much larger fall in the number of people looking for work. The workweek and total hours worked were also down, making the report weak across the board.”

“It is back to the drawing board for those who believed the economy was blasting into 2004 at full speed,” Nesbitt concludes.

CIBC World Markets insists that it doesn’t place too much emphasis on one month’s numbers, but allows that, “it’s hard not to be disappointed in the failure of the US payrolls to show any meaningful increase in December, particularly when accompanied by a downward revision totaling 51,000 for the prior two months.”

TD concludes that today’s report will “sow fresh doubt about the sustainability of the U.S. recovery. While activity indicators have been robust in recent months, the gains are not yet translating into new hiring.”

“December may prove ultimately to be a temporary reversal in that improving trend – because, as has frequently been noted, despite the U.S. economy’s remarkable productivity performance, output growth cannot be sustained at its current pace without an increase in employment,” it says. “Nevertheless, the lag is becoming worrisome and certainly strengthens the case for the U.S. Federal Reserve to keep interest rates on hold for some time – in our view, until the third quarter of the year.”

http://www.bmonb.com/Economics/econofacts/20040109b/