Economy gains 120,000 jobs; unemployment drops to 8.6%

Source: New York Times

Somehow the American economy appears to be getting better, even as the rest of the world is looking worse.

In the midst of the European debt crisis, lingering instability in the oil-rich Middle East and concerns about a Chinese economic slowdown, the American unemployment rate unexpectedly dropped last month to 8.6 percent, its lowest level in two and a half years. The nation’s employers modestly increased their hiring, too, the Labor Department said Friday.

The figures come just a few months after economists were warning that the economy’s prospects were waning.

“If you go back to August, all sorts of people were telling us that the economy was headed straight into recession,” said Paul Ashworth, senior United States economist at Capital Economics. “Since that point, we’ve become more and more worried about the euro zone and other areas of the global economy, but somehow, at least for the moment, the U.S. economy seems to be shrugging all that off.”

Resilient as the economy has apparently been since then, the fate of the recovery appears to be more dependent on external — and especially European — events.

So far Europe’s problems have been relatively contained to the Continent. Many economists worry, however, that a disorderly default of Greece or Italy, which still looks alarmingly possible, could lead to a financial crisis that would plunge not only Europe but the entire world into a depression.

If recent history is any guide, even a modest credit tightening could throw the American economy off course; earlier this year, a series of shocks from higher oil prices, the Japanese earthquake and the stalemate over the United States debt ceiling managed to drain the energy from a newly rejuvenated recovery.

In addition to hawking its domestic jobs package, the Obama administration has stepped up its involvement in the euro zone crisis in recent days. The Treasury Department announced Friday that Secretary Timothy F. Geithner will visit European political and financial leaders in several cities next week.

“As president, my most pressing challenge is doing everything I can every single day to get this economy growing faster and create more jobs,” President Obama said Friday in Washington.

November’s drop in unemployment to 8.6 percent was a welcome relief, given that the jobless rate had been stuck at 9 percent for most of 2011.

The decline in the unemployment rate had a downside, though: It fell partly because more workers got jobs, but also because about 315,000 workers dropped out of the labor force. That left the share of Americans actively participating in the work force at a historically depressed 64 percent, down from 64.2 percent in October.

A separate survey of employers, which economists pay more attention to than the unemployment rate, found that companies added 120,000 jobs last month, after adding 100,000 jobs in October.

These payroll numbers were not particularly impressive by historical standards — payroll growth was just about enough to keep up with population growth — but there were other signs of resilience. Employment in the previous two months was revised upward substantially, and the report showed that companies have been taking on more and more temporary workers, indicating that more permanent hires may be in the cards, too.

Other recent economic reports have also been positive, including increases in help-wanted advertising, retail sales and auto sales in particular; decreases in jobless claims; and a loosening of credit conditions for small businesses. Perhaps most encouraging was a recent survey of small businesses that found hiring intentions to be at their highest level since September 2008, when Lehman Brothers collapsed.

“Small businesses were cheering up at the end of last year, but then got clobbered by the jump in oil prices, the Japanese earthquake and then the debt ceiling fiasco,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “Small businesses employ half the work force, and we need them on board.”

Still, serious concerns remain about the economy’s ability to weather the financial and economic turmoil from abroad.

American governments at all levels continued to bleed workers, for one. Even excluding the hundreds of thousands who left the labor force, the country still had a backlog of more than 13 million unemployed workers, whose unemployment averaged an all-time high of 40.9 weeks.

“They say businesses are refusing to look at résumés from the unemployed,” said Esther Perry, 59, of Bedford, Mass., who participated in a recent report on unemployed workers put together by USAction, a liberal coalition. “What do you think my chances are? Once unemployment runs out, I don’t know what I will do.”

Even those who are employed are in fragile positions. Average hourly earnings fell 0.1 percent in November, and a Labor Department report released Wednesday found that the share of national income going to labor was at an all-time low last quarter.

These softer spots in Friday’s numbers underscored just how much President Obama needs additional stimulus, a tidy and fast resolution to the European debt crisis or some other economic breakthrough to reinvigorate the job market before the 2012 presidential election.

On the issue of government action to stimulate the economy, there has been some movement in Washington toward extending the payroll tax cut, which is currently scheduled to expire at the end of this month. Economists have said that allowing the expiration of the tax cut — which lets more than 160 million mostly middle-class Americans keep two percentage points more of their pay checks — could be a severe drag on both job creation and output growth.

“If isn’t extended, it will have an impact on consumer spending in the first half of next year because it’ll put a big dent in consumer income,” said Conrad DeQuadros, senior economist at RDQ Economics. “To the extent that reduces spending, there will be second-round effects on hiring.”

Extending the tax cut would likely lead to 600,000 to 1 million more jobs, according to Adriana Kugler, the chief economist at the Department of Labor.

The other major stimulus program scheduled to expire by 2012 is the extended unemployment insurance benefits, which allow some jobless workers to continue receiving benefits for as long as 99 weeks. Already, millions of workers have exhausted their benefits, and ending extended benefits is likely to affect another sizable chunk of the unemployed.

Failing to renew the federal benefit extensions will cause 5 million additional people to lose benefits next year, Labor Secretary Hilda Solis said in an interview.

Unemployment benefits are believed to have one of the most stimulative effects on the economy, since recipients of these benefits are likely to spend all of the money they receive quickly and so pump more spending through the economy.

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