Jan. 8, 2010 – 8:00 a.m.

December Employment Disappoints As Unemployment Holds at 10 Percent

Firing outpaced hiring by a significant 84,000 margin in December. Bad winter weather and a harsher seasonal adjustment of the data exaggerated those losses. On the plus side, temporary hires picked up and the workweek held steady, which suggests that we are still on track to post modest job gains in the first quarter. It is hard, however, to escape a profound sense of disappointment.

The unemployment rate held steady at 10% in December, which was the result of a reduction in the labor force rather than a stabilizing of labor market conditions. Indeed, it now appears that unemployment could peak at an even higher rate than previously thought, as those who had given up on finding a job throw their hats back into the ring as we move into 2010.

Implications for the Fed: Those betting that the hawks at the Fed will win over the doves and raise interest rates sooner rather than later should rethink their position. The Fed will continue to support the economy in any way it can, with unemployment close to or above the 10% threshold - and it looks like that will be the case for much of the year. The Fed may even have to rethink its plan to stop buying mortgage-backed securities at the end of March. Although, a lot can happen between now and then.

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