US job market shrugs off fears of fiscal cliff

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.

The job market is being held back by government cutbacks. Governments at all levels cut 13,000 jobs in December. Since the

Great Recession ended in mid-2009, governments have eliminated 645,000 jobs — an average of nearly 15,400 a month.

By contrast, during the recoveries from the

recessions of 1990-1991 and 2001, governments added an average of more

than 15,000

jobs a month. If governments were hiring at that pace instead of

slashing payrolls, the U.S economy would be generating more

than 180,000 jobs a month.

Instead, for two full years, monthly job

growth has remained stuck at a tepid pace: It averaged 153,000 in both

2011 and 2012.

That isn't enough to lower unemployment to what economists regard

as a "normal" rate of 6 percent or less. The Federal Reserve

doesn't expect unemployment to drop that low until after 2015.

The economy has replaced just 4.8 million,

or 54 percent, of the 8.8 million jobs lost between January 2008, when

the job

market peaked, and February 2010, when it bottomed during the

recession. It has been, by far, the weakest jobs recovery since

the Great Depression of the 1930s.

"A status quo report in today's labor market represents an ongoing jobs crisis," says Heidi Shierholz, an economist at the

liberal Economic Policy Institute.

Still, the economy has been showing broad improvement. Layoffs are down. Banks are lending a bit more freely. Companies have

built up a near-record $1.7 trillion in cash. Consumers have cut their debts to pre-recession levels. Europe has avoided a

financial catastrophe.

The once-depressed housing market is rebounding. A gauge of U.S. service firms' business activity expanded in December by

the most in nearly a year. Manufacturing is benefiting from the best auto sales in five years. And Americans spent more at

the end of the crucial holiday shopping season.

"There is little doubt that the seeds of faster growth are being planted," James Marple, an economist at TD Bank, said in

a note to clients.

That said, most economists expect slight

improvement at best in hiring this year. A 2 percentage point cut in the

Social Security

tax expired Jan. 1. That means a household with income of about

$50,000 will have about $1,000 less to spend. A household

with two high-paid workers will have up to $4,500 less.

And the government may impose spending cuts this year.

Higher taxes and less government spending, along with uncertainty about future budget fights, could restrain growth and hiring.

That "likely means acceleration in the labor market will remain elusive for the time being," said Ellen Zentner, an economist

at Nomura Securities.