By Lucia Mutikani
WASHINGTON (Reuters) - U.S. payrolls surged in December and the job count for the prior two months was revised sharply higher, showing the economy on solid ground despite a troubling international backdrop.
Nonfarm payrolls increased by 292,000 last month, the Labor Department said on Friday, as hiring got a boost from unseasonably warm weather. The unemployment rate held steady at a 7-1/2-year low of 5 percent even as more people entered the labour force, a sign of confidence in the job market.
The robust employment data helped soothe fears about the economy's health, and suggested recent weakness would largely be contained to the manufacturing and export-oriented sectors, which have been hit by a strong dollar (.DXY) and anaemic global demand. Efforts by businesses to whittle down an inventory glut and spending cuts by energy companies have also inflicted pain.
"It gives us a short-term shot in the arm and pushes back the idea that we are headed for a global recession or that weakness in China will sink our economy," says David Donabedian, chief investment officer at Atlantic Trust Private Wealth Management in Baltimore.
Slumping oil prices and slowing growth in China have cast a pall on the outlook for the global economy.
The upbeat employment report briefly helped staunch the bleeding on Wall Street, but was offset by further declines in oil prices. The dollar firmed against a basket of currencies as traders ramped up bets the Federal Reserve would raise interest rates in March. Prices for U.S. government debt rose on safe-haven bids.
Concerns about a slowdown in China, the world's second-largest economy after the United States, have spooked investors worldwide. But signs of stability emerged overnight after China ditched a stock market circuit breaker and guided its currency higher.
U.S. payrolls for October and November were revised to show 50,000 more jobs created than previously reported, adding to the report's upbeat tone. The only wrinkle was a one cent drop in average hourly earnings.
Economists, who slashed fourth-quarter U.S. growth forecasts on recent soft economic data, had expected payrolls to increase by only 200,000 last month. Fourth-quarter GDP growth estimates currently range from as low as a 0.4 percent annual rate to as high as a 1.1 percent pace.
Though payroll growth was softer last year than in 2014, with 2.65 million jobs created compared with 3.1 million in the prior year, the job gains in 2015 were still the second largest since 1999.
FOCUS ON WAGE GROWTH
While the labour market's resilience could spur Fed policymakers to hike rates in March, some economists said low inflation and the recent turmoil in financial markets could stay their hand.
"These figures obviously support a March rate hike from the Fed, but ... it is developments in inflation rather than the labour market that will determine the pace of future rate hikes," said Paul Ashworth, chief U.S. economist at Capital Markets in New York. "With oil prices close to $30 a barrel now, this latest labour market improvement doesn't necessarily guarantee a March rate hike."
The U.S. central bank last month raised overnight rates by a quarter percentage point to between 0.25 and 0.50 percent, the first increase in nearly a decade, and a subsequent move at its next meeting this month was already seen as off the table.
With the Fed focussed on inflation, wage growth is under scrutiny. Economists said December's decline in earnings could simply be due to a calendar-related quirk.
Despite that drop, the year-on-year gain moved up to 2.5 percent from 2.3 percent in November, although that reflected an unusually weak December 2014.
Also being watched closely is the labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job. While the rate increased one-tenth of a percentage point to 62.6 percent in December, it remains near four-decade lows.
There are concerns persistently low participation could hamper job growth as the supply pool of workers shrinks, unless a pick-up in earnings entices more Americans to return to the labour force. The employment-to-population ratio increased to 59.5 percent last month, its highest level since May 2009, from 59.4 percent in November.
Employment gains in December were concentrated in the services sector, with mining shedding a further 8,000 jobs. Employment in the mining sector declined by 129,000 in 2015 and more losses are likely with oil prices at an 11-year low.
Oilfield services provider Schlumberger (SLB.N) last month announced another round of job cuts in addition to 20,000 layoffs already reported in 2015. The company said it expected the slowdown in drilling activity to continue this year.
Manufacturing added 8,000 jobs last month and warm weather boosted construction payrolls, which increased by 45,000. Retail payrolls rose only 4,300 as mild temperatures hurt sales of winter apparel.
The weather also limited job gains in the leisure and hospitality sector, with employment rising 29,000 after increasing by 47,000 the prior month. Temporary help had a gain of 34,400 jobs last month and government payrolls rose 17,000.
(Reporting by Lucia Mutikani; Editing by Tim Ahmann, Andrea Ricci and Paul Simao)