WASHINGTON— Lack of confidence in the economic recovery led U.S. employers to shed a more-than-expected 85,000 jobs in December even as the unemployment rate held at 10 percent. The rate would have been higher if more Americans had been looking for work instead of leaving the labor force because they can't find jobs.
The sharp drop in the work force — 661,000 fewer people — showed that more of the jobless are giving up on their search for work. Once people stop looking for jobs, they are no longer counted among the unemployed.
When discouraged workers and part-time workers who would prefer full-time jobs are included, the so-called "underemployment" rate in December rose to 17.3 percent, from 17.2 percent in November. That's just below a revised figure of 17.4 percent in October, the highest on records dating from 1994.
Revisions to the previous two months' data showed the economy actually generated 4,000 jobs in November, the first gain in nearly two years. But the revisions showed it also lost 16,000 more jobs than previously estimated in October.
The report caps a disastrous year for U.S. workers. Employers cut 4.2 million jobs in 2009, and the unemployment rate averaged 9.3 percent. That's compared with an average of 5.8 percent in 2008 and 4.6 percent in 2007. Nearly 15.3 million people are unemployed, an increase of 3.9 million during 2009.
The economy has lost more than 8 million jobs since the recession began in December 2007.
Most economists worry that 2010 won't be much better. Federal Reserve officials, in a meeting last month, anticipated that unemployment will decline "only gradually," according to minutes of the meeting released earlier this week. The Fed and most private economists expect the unemployment rate will remain well above 9 percent through the end of this year.
There were more job cuts Friday. UPS, the world's largest package delivery company, said it will cut 1,800 management and administrative positions to streamline its U.S. package segment. UPS has 408,000 employees worldwide. About 340,000 of those workers are in the U.S.
Many economists had hoped that Friday's report would show the economy gained jobs for the first time in two years. While the revised figures found an increase in November, it was tiny.
"One word sums it up: disappointment," said Jonathan Basile, an economist at Credit Suisse.
Referring to the drop in the labor force, Basile said, "that tells me that Main Street (average businesses and households) doesn't believe there's a recovery yet, because they're not out looking for jobs yet."
If jobs remain scarce, consumer confidence and spending could flag, potentially slowing the economic recovery. Many analysts estimate the economy grew by 4 percent or more at an annual rate in the October-December quarter, after 2.2 percent growth in the third quarter.
But the economy will need to grow faster than that to bring down the unemployment rate. And the concern is that much of the recovery stems from temporary factors, such as government stimulus efforts and businesses rebuilding inventories.
Still, some economists said that a recent trend of improvement remains in place. The economy lost an average of nearly 700,000 jobs in the first three months of last year, a figure that dropped to 69,000 in the fourth quarter.
And the private service sector added jobs for the second straight month, said Nigel Gault, chief U.S. economist at Global Insight, though the gains have been concentrated in temporary workers.
"Firms are still being very cautious, so the first thing they are turning to aren't full-time employees, but temps," he said. Companies have added about 166,000 temp workers since July.
The average work week remained unchanged at 33.2 hours, near October's record low of 33. Most economists hoped that would increase, as employers are likely to add hours for their current employees before hiring new workers.
Job losses remained widespread: manufacturing lost 27,000 jobs and construction shed 53,000, while retailers, the leisure and hospitality industries and government also cut workers.
Some companies are continuing to layoff workers: UPS said Friday it will cut 1,800 jobs. And defense contractor Lockheed Martin Corp. said Wednesday that it is cutting 1,200 workers, or less than 1 percent of its work force. (AP)