Jobless Rate Dips to 8.6%; Lowest Level in Two Years
(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 Labor Department also said that the nation’s employers added 120,000 jobs in November and that job growth for the previous two months was better than initially reported. That looks like good news for President Obama as he heads into the 2012 presidential election — especially since just a few months ago the picture looked bleak.
“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.”
Even so, part of the reason the jobless rate fell so low was that 315,000 unemployed workers simply stopped applying for jobs. And resilient as the economy seems to have been since this summer, the fate of the fragile recovery is still tied to external — and especially European — events.
So far Europe’s problems have been relatively contained to the Continent. Many economists worry that a disorderly default of Greece or Italy, which still looks alarmingly possible, could plunge Europe into a depression.
If recent history is any guide, even a modest shock wave from across the ocean 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 the recovery.
November’s drop in unemployment was a welcome relief, given that the jobless rate had been stuck at 9 percent for most of 2011. It is at the lowest level since March 2009; the rate has been above 8 percent for 33 months.
The share of workers who were unemployed fell in November partly because some people found jobs and partly because some discouraged workers dropped out of the labor force altogether. That left the share of Americans 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 in October.
These 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.
Companies have been taking on more and more temporary workers, suggesting that more permanent hiring may be in the cards. What is more, help-wanted advertising, retail sales and auto sales have risen; jobless claims have fallen; and businesses seem to be getting loans more easily. 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. The public sector continues to lay off workers at the federal, state and local level. And excluding the hundreds of thousands who have left the labor force, the country still has a backlog of more than 13 million unemployed workers, whose average period of unemployment is at a record high of 40.9 weeks. The median period, the point between the top and bottom halves, is 21.6 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 with jobs are in weak 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 a record low last quarter.
These softer spots in Friday’s numbers underscored just how much President Obama could use 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.
“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.
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 scheduled to expire at the end of this month. Economists have said that allowing the tax cut — which lets more than 160 million mostly middle-class Americans keep two percentage points more of their paychecks — to expire could be a severe drag on both job creation and output growth.
“If it 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.”
According to some estimates, an extension would probably lead to 600,000 to one million more jobs. The other major stimulus program scheduled to expire by 2012 is the extension of unemployment insurance benefits, allowing some jobless workers to continue collecting for as long as 99 weeks. Already, millions of people have exhausted their benefits. Failing to renew the federal benefit extensions will cause five 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, because recipients are likely to spend all of the money they receive quickly and pump more spending through the economy.