Jobless rate falls to 4-year low. . . but only because the size of the workforce has fallen
- Jobless rate fell to 7.7 percent for November – its lowest rate in four years
- However, the Labor Department’s report shows a drop in the size of the workforce as a whole – an indication that some people have given up looking for work altogether
- The mixed report comes ahead of January’s anticipated ‘fiscal cliff’ of tax rises
By James Nye
PUBLISHED: 12:26 EST, 7 December 2012 | UPDATED: 18:45 EST, 7 December 2012
The U.S. jobless rate fell to a four year low of 7.7 percent the Labor Department announced today as 146,000 jobs were added to the economy in November.
However, the news was not all rosy for the U.S. economy and President Obama, with one worrying aspect to the Labor Deparment’s report showing a drop in the size of the workforce as a whole – an indication that some people have given up looking for work altogether.
The mixed report offered a mixed picture for the economy with hiring remaining steady during Superstom Sandy and in the face of looming fiscal cliff tax rises. However Obama administration admitted that employers added 49,000 fewer jobs in October and September than they had estimated.
The unemployment rate fell to a four-year low in November from 7.9 percent in October mostly because more people stopped looking for work and weren’t counted as unemployed.
There were signs that the storm disrupted economic activity. Construction employment dropped 20,000. And weather prevented 369,000 people from getting to work – the most in almost two years. They were still counted as employed.
‘The labor market is not getting worse, but is also not getting much better,’ said Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York.
Stock futures jumped after the report. Dow Jones industrial average futures were down 20 points in the minutes before the report came out at 8:30 a.m., and just after were up 70 points.
As money moved into stocks, it moved out of safer bonds. The yield on the benchmark 10-year U.S. Treasury note, which moves opposite the price, rose to 1.63 percent from 1.58 percent just before the report.
Since July, the economy has added an average of 158,000 jobs a month. That’s a modest pickup from 146,000 in the first six months of the year.
The increase suggests employers are not yet delaying hiring decisions because of the ‘fiscal cliff.’ That’s the combination of sharp tax increases and spending cuts that are set to take effect next year without a budget deal.
Retailers added 53,000 positions while temporary help companies added 18,000 and education and health care also gained 18,000.
Auto manufacturers added nearly 10,000 jobs.
Still, overall manufacturing jobs fell 7,000. That was pushed down by a loss of 12,000 jobs in food manufacturing that likely reflects the layoff of workers at Hostess.
Sandy forced restaurants, retailers and other businesses to close in late October and early November in 24 states, particularly in the Northeast.
The U.S. grew at a solid 2.7 percent annual rate in the July-September quarter. But many economists say growth is slowing to a 1.5 percent rate in the October-December quarter, largely because of the storm and threat of the fiscal cliff. That’s not enough growth to lower the unemployment rate.
The storm held back consumer spending and income, which drive economic growth. Consumer spending declined in October and work interruptions caused by Sandy reduced wages and salaries that month by about $18 billion at an annual rate, the government said.
Still, many say economic growth could accelerate next year if the fiscal cliff is avoided. The economy is also expected to get a boost from efforts to rebuild in the Northeast after the storm.
November’s job gains were in line with the trend that has prevailed all year. Job growth has averaged 151,000 per month since January, just enough to push the jobless rate lower, but only slowly. Economists say roughly 200,000-250,000 jobs per month are normally needed to really make headway.
The 0.2 percentage point drop in the unemployment rate last month to 7.7 percent — the lowest since December 2008 — reflected a decrease in the size of the labor force as measured by a survey of households. Economists generally rely more heavily on the payrolls reading from the separate and much larger survey of employers.
While job gains for both September and October were revised to show 49,000 fewer jobs created than earlier reported, the revision was concentrated in the government sector.
Private sector job growth did slow in November to 147,000 from 189,000 in October, but economists were heartened it did not drop off more in light of the storm.
‘While more work remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to heal from the wounds inflicted by the worst downturn since the Great Depression,’ said Alan Krueger, chairman of the White House Council of Economic Advisers.
Employment continues to be held back by fears the government may fail to prevent the $600 billion in automatic tax hikes and government spending cuts set to take hold at the start of next year. The debt crisis in Europe has also weighed.
Worries about this ‘fiscal cliff’ hit consumer sentiment in early December. The Thomson Reuters/University of Michigan’s preliminary confidence reading plummeted to 74.5 in early December from 82.7 a month earlier.
‘Confidence plunged in early December as consumers confronted the rising likelihood that political gridlock would push the country over the fiscal cliff,’ survey director Richard Curtin said in a statement.
With the labor market far from full health, Federal Reserve policymakers, who meet on Tuesday and Wednesday, look certain to keep U.S. monetary policy on its current ultra-easy course.
Economists said an anticipated tightening of fiscal policy next year, even if a deal is reached to avoid completely going over the fiscal cliff, provides ample reason for the U.S. central bank to maintain its stance.
‘It doesn’t change the outlook for the Fed … I still would be expecting them to announce next week that they’ll be extending their (bond) purchases to next year,’ said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York.
Relentless labor market weakness led the Fed in September to launch a program to buy $40 billion worth of mortgage-backed securities every month to drive down borrowing costs.
That is on top of a program dubbed ‘Operation Twist’ in which it was re-weighting securities it holds toward longer maturities. Twist expires at the end of this month and economists expect the Fed to replace it with a program that buys government bonds with newly created money.
All of the jobs gains in November were in the private sector, with government employment slipping 1,000.
Within the vast private services sector, retail employment gained 52,600 and professional and businesses services increased 43,000. Temporary help hiring increased 18,000.
In the goods-producing sector, manufacturing employment fell 7,000. Construction payrolls surprisingly dropped 20,000, despite a surge on homebuilding, which is benefiting from the Fed’s accommodative policy stance.
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