Fiscal cliff stalemate heightens doubt
WASHINGTON – A surprise drop in the jobless rate and a new measurement showing a sharp slide in consumer sentiment underscore what’s at stake for a sluggish economic recovery threatened by the coming political showdown in the nation’s capital.
Employers added a better-than-expected 146,000 jobs in November and the unemployment rate tumbled two-tenths of a percentage point to 7.7 percent, the Labor Department said Friday in a report that suggested the economy is gaining a bit more economic steam.
But weighing against the positive numbers, the University of Michigan released its monthly measurement of consumer confidence Friday and found that it had plunged by more than 8 points. It’s a clear indicator that Washington’s squabbling over possible tax increases and steep government spending cuts in 2013 is affecting consumers and can serve either to kick-start or hurt growth.
“Bottom line is that the job market is holding firm despite rising worries over the fiscal cliff. If Washington can get it together reasonably soon, the job market will kick into a higher gear,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics.
In an investor note, Bank of America Merrill Lynch economist Michelle Meyer added that “businesses have cut back investment in capital in the face of the cliff, they have yet to do so with labor. This shows some stability heading into year-end.”
Still, bitter partisan political battles are worrying ordinary Americans and may affect their behavior. On Friday, financial and insurance giant Allstate released its latest Heartland survey, which also found flagging sentiment.
Asked whether the country is moving in the right direction, 75 percent of Democrats surveyed said the economy would improve in the next 12 months, while 63 percent of Republicans queried said it would get worse.
“That’s what we’ve seen consistently in our polls: a pretty even split, deeply divided,” said Joan Walker, an Allstate executive vice president.
The measures of sentiment help explain why the political parties remain so dug in to their positions as the “fiscal cliff” approaches.
Missing from Friday’s jobs report, it seemed, were the effects of Superstorm Sandy, which devastated the East Coast as it made landfall Oct. 29. The Bureau of Labor Statistics, part of the U.S. Labor Department, felt compelled to say as much when it released the monthly report.
“Our analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates for November,” the BLS said, noting that response rates to its survey from businesses were within normal ranges.
More surprising than the stronger-than-expected numbers was the drop in the jobless rate to the lowest it’s been since December 2008. The White House and many economists no longer think the rate is a statistical anomaly.
“Over the last 12 months, the unemployment rate has decreased by 1.0 percentage point as a result of growing employment, and the labor force participation rate has been essentially unchanged,” Alan Krueger, the head of the White House Council of Economic Advisers, said in a blog posting on the jobs report.
The jobless rate is holding below 8 percent even as the labor force participation rate has averaged 63.7 percent in the past six months. During the same period, the unemployment rate declined from 8.2 percent to 7.7 percent, meaning the rate isn’t due simply to a shrinking pool of workers.
“The unemployment data are painting a brighter picture on the economy than any other data series we can think of and, therefore, are out of sync with other indicators and hard to understand,” John Ryding and Conrad DeQuadros of RDQ Economics wrote in a research note. “Our best take is that the economy is growing at a moderate rate at the end of 2012 despite the uncertainties of the fiscal cliff and the impact of Sandy – a testament to the resiliency of the U.S. economy.”
Retailers led the charge, with 52,600 additional hires, followed by professional and business services at 43,000. Leisure and hospitality, a reflection of consumer and business sentiment, rose by 23,000, followed by health care adding 22,000 jobs.
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