Unexpected drop in jobless rate sparks optimism
WASHINGTON — A surprising drop in the unemployment rate and far fewer job losses last month cheered investors Friday and raised hopes for a sustained economic recovery.
The rate unexpectedly fell to 10 percent, from 10.2 percent in October, as employers cut the fewest number of jobs since the recession began. The government also said 159,000 fewer jobs were lost in September and October than first reported.
If part-time workers who want full time jobs and laid-off workers who have given up looking for jobs are included, the so-called underemployment rate also fell, to 17.2 percent from 17.5 percent in October.
The better-than-expected figures provided a rare dose of good news for a labor market that’s lost 7.2 million jobs in two years. Still, the respite may be temporary.
Job creation is expected to remain far too weak in coming months to absorb the 15.4 million unemployed people who are seeking work — and the 11.5 million others who are underemployed. As more people begin seeking work, the jobless rate is likely to resume rising.
The report offered evidence of how hard it remains to find work: The number of people jobless for at least six months rose last month to 5.9 million. And the average length of unemployment has risen to more than 28 weeks.
Even counting last month’s decline, the unemployment rate has more than doubled since the recession began in December 2007, when it stood at 4.9 percent. And the underemployment rate has jumped to 17.2 percent from 8.7 percent.
“We will need very substantial job growth to get unemployment lower, especially when the labor force … starts growing again,” said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank.
Still, economists and investors drew hope from the Labor Department report. It said the economy shed 11,000 jobs last month — a sharp improvement from October’s revised total of 111,000. And it was much better than the 130,000 Wall Street economists had expected.
The average work week also rose to 33.2 hours, from a record low of 33 hours, along with average earnings. Economists expect employers will increase hours for their current workers before hiring new ones.
The stock market jumped and Treasurys fell in response to the reports. In midmorning trading, the Dow Jones industrial average surged 110.94, or 1.1 percent. Broader stock averages also rose.
“We’ve still got a long way to go, but the good news in this report provides important positive momentum,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank.
The increase in hours worked means employees are earning more income, Riccadonna said, which could help boost consumer spending and enable Americans to pay down more debt.
Average weekly earnings jumped $4.08 to $622.17, the report said.
Temporary help services added 52,000 jobs, the fourth straight increase. That’s also positive news, because companies are likely to hire temporary workers before adding permanent ones. Total employment usually starts to increase between three and six months after temporary employment, Riccadonna said.
The economy has now lost jobs for 23 straight months. But the small decline in November indicates the nation could begin generating jobs soon. Many economists think it will happen in the first quarter of next year.
David Rosenberg, chief economist for Canadian wealth management firm Gluskin Sheff, said the 7 point difference between the jobless rate and underemployment rate is almost double the usual gap. That’s an indication of how many more people are likely to be looking for work in coming months.
Another worrisome sign: The National Federation of Independent Business said Thursday that a monthly survey of its small business members showed that more companies plan to reduce employment in the next three months than plan to add jobs.
And a survey by outplacement firm Challenger, Gray & Christmas Thursday found a sharp drop in the number of companies planning to hire workers in November, compared with the previous month.
The services sector gained 58,000 jobs last month, while manufacturing and construction shed 68,000 positions. Education and health services added 40,000 jobs, and government employment rose 7,000.
The unemployment rate fell because the number of jobless Americans dropped by 325,000 to 15.4 million. The jobless rate is calculated from a survey of households. The number of jobs lost or gained, by contrast, is calculated from a separate survey of business and government establishments. The two surveys can sometimes vary.
The unemployment rate also dropped because fewer people are looking for work. The size of the labor force, which includes the employed and those actively searching for jobs, fell by nearly 100,000, the third straight decline. That indicates more of the unemployed are giving up on looking for work.
The participation rate, or the percentage of the population employed or looking for work, fell to 65 percent, the lowest since the recession began. Once laid-off people stop hunting for jobs, they are no longer counted in the unemployment rate.
Even as layoffs are easing, the slow pace of hiring is causing headaches for political leaders. The employment report comes a day after President Barack Obama hosted a “jobs summit” at the White House, where he told economists, business executives and union leaders that he is “open to every demonstrably good idea” to create jobs.
Christina Romer, the head of the president’s Council of Economic Advisers, called the jobs report “unquestionably good news.” She cautioned into reading too much into one month’s number, noting that the data can be “volatile.”
“We have seen the economic recovery in the sense of GDP growing again, we have seen stabilization in our financial markets,” she said in an interview with the Associated Press. “I think this could be a sign that that is finally getting to the job market.”
Democrats in Congress are considering legislation that would extend jobless benefits for those who have run out and help the unemployed pay for health care coverage. Those measures could cost up to $100 billion.
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