Just when it seemed as if the economy was finally accelerating, the latest employment figures once again confounded expectations of better days ahead.
The government said on Friday that employers added jobs at the slowest pace in three years in December, reversing three months of steadily rising hiring that had persuaded economists and policy-makers at the Federal Reserve that the labor market had finally turned the corner.
Wintry weather, however, may have exaggerated the weakness, and the unexpectedly grim data immediately set off a debate among economists as to whether they were an anomaly or an indication of a more significant slowdown in the economy.
But even after accounting for factors like cold temperatures and snow that may have inhibited hiring, many experts cautioned that other trends, like average hourly earnings and the labor participation rate, were hardly encouraging.
“What it does say is that we’re not in takeoff mode in the labor market,” said Julia Coronado, chief United States economist at BNP Paribas. “It’s not so much weakness in hiring as lack of vitality. We’re treading water.”
On Capitol Hill, the lackluster economic picture in December may strengthen the hand of Democrats who are pushing to extend unemployment benefits to 1.3 million Americans whose coverage expired at the end of the year.
Since midsummer, the job market had been trending upward, with employers adding 241,000 workers in November, a robust performance that helped persuade the Fed to begin easing its vast stimulus program. But the latest data called into question whether the central bank’s optimism was premature.
Employers added just 74,000 jobs last month, the Labor Department said, a far cry from the 200,000 that economists had been looking for, and well below the monthly average increase of 182,500 over the course of 2012 and 2013.
The one apparent bright spot in Friday’s report — a sharp drop in the unemployment rate to 6.7 percent from 7 percent — was tarnished because it largely resulted from people exiting the work force rather than because they landed jobs. The work force shrank by 347,000 in December, reversing a big gain from November, and returning the proportion of Americans in the labor force to its October level of 62.8 percent, the lowest in 35 years.
While some of that decline is because of demographic factors like an aging population and rising retirements, Ms. Coronado said she was particularly troubled by how many prime-age workers were dropping out.
Among workers aged 45 to 54, the participation rate dropped 0.4 percentage point to 79.2 percent, the lowest since 1988. For workers 55 and older, the participation rate edged down only 0.1 percentage point. “It just keeps dropping and dropping,” she said. “It’s depressing, as it’s not just older workers retiring.”
After initially dropping in the wake of the Labor Department report Friday morning, stocks recovered later in the day as investors shifted their focus away from the labor market to what they hope will be more buoyant results as companies report fourth-quarter earnings in the next few weeks.
Some economists, impressed by other recent data showing steadily rising economic output, private surveys showing healthier payroll gains, a growing manufacturing sector, and increased exports, suggested that December’s figures represented a statistical fluke rather than another of the so-called swoons that have been a recurring feature of the fitful recovery that has followed the Great Recession.
“My advice is to ignore this number,” said Nariman Behravesh, chief economist at IHS. “A lot of other indicators are showing strength. It was largely noise last month, and the Fed will see it the same way, unless there is other evidence that gives them pause.”
Most experts say the Federal Reserve will stick with its plan to gradually taper its stimulus program when policy-makers meet later this month, but future reductions could be delayed if payroll gains remain weak in February and March.
Even as optimists like Mr. Behravesh insisted that December’s data was not a sign that the recovery was ebbing, they say it makes sense to remain focused on the labor market. “This is the weak spot in the economy,” he said. “Output has recovered and is above the prerecession level. But employment is still about two million below where it was when the recession started.”
Although retailing posted decent gains as the holiday shopping season reached its peak in December, the figures suggested that other areas of the economy that had been healthy for most of 2013 reversed course as the year drew to a close, significantly cutting into overall job creation.
For example, the construction industry lost 16,000 jobs in December, an about-face from the 2013 average monthly gain of 10,000 jobs. Similarly, health care employment fell by 6,000, compared with monthly gains of 17,000 in 2013 and 27,000 in 2012. The average workweek in the private sector fell to 34.4 hours, a drop of a tenth of an hour and another sign of softness in the economy.
Some groups fared better than others, despite the broad weakness in the data. For example, the number of jobs held by women increased 75,000, even as those held by men dropped by 1,000. Men were especially hurt by the construction sector decline, while women benefited more from the growth in retailing. At the same time, the labor participation rate among workers with some college or more rose slightly, but was more than offset by a fall in participation among people with a high school diploma or less.
Economists cautioned that month-to-month volatility in the payrolls report was common, and the numbers could be revised upward in the future. The Labor Department revised the number of jobs created in November to 241,000 from 203,000.
And there have been other big month-to-month swings in 2013. After a 172,000 gain in June, payrolls advanced by just 89,000 in July, only to jump by 238,000 in August.
On Wall Street, the Standard & Poor’s 500-stock index finished the day up 4.24 points or 0.23 percent, at 1,842.37. The Dow Jones industrial average edged lower 7.71 points or 0.05 percent, closing at 16,437.05. The Nasdaq composite index gained 18.47 points or 0.44 percent, ending the week at 4,174.67.
In the market for government bonds, the price of the benchmark 10-year Treasury note rose 29/32 to 99 2/32, sending its yield down to 2.86 percent from 2.96 percent late Thursday.
Michael Hanson, senior United States economist at Bank of America Merrill Lynch, estimated that even if weather did subtract 75,000 to 100,000 jobs from payroll gains, December hiring was nevertheless somewhat anemic. Nor does the weather explain why average hourly earnings increased by only 0.1 percent in December, about half the average percentage increase for the last 12 months.
“You can’t say it’s the weather, wash your hands and be done with it,” he said. “Even with a generous interpretation, job growth was softer than it has been recently.”