Unemployment Rate Drops To Lowest Level In Three Years

Finally a little bit of good news for the unemployment rate/economy! As a Friday, the unemployment rate has dropped to it’s lowest level in three years meaning more people have been finding jobs. In November the U.S. economy added 120,000 jobs but that still isn’t enough. Although the unemployment rate has dropped it is still really high and we still aren’t close to being in the clear. Read more after the jump.

Despite a stark drop in the national unemployment rate reported Friday, economists warned it will take decades for the labor market to return to pre-recession employment levels if the economy’s achingly slow growth continues.

The U.S. economy added 120,000 jobs in November — falling short of economists’ expectations — while the unemployment rate dipped from 9.0 to 8.6 percent, the Bureau of Labor Statistics reported Friday morning. But roughly half of the decline in the unemployment rate came from the 315,000 Americans who dropped out of the labor market last month, in part a reflection of the slow pace of the recovery, economists said.

“When unemployment is this high for this long, it’s very likely that most of the people dropping out are doing so because they can’t find work,” said Heidi Shierholz, an economist at the Economic Policy Institute, who has studied the shrinking labor force during the years since the recession began. “There is some movement here, that’s true. But it’s just so slow.”

While November’s job gains roughly kept pace with population growth, a more positive glimmer can be found in the upwards revisions of the past two months of employment growth. Job growth for September was revised up to 210,000 from 158,00, and October’s gains were up to 100,000 from 80,000.

120,000 may not be 250,000 — the lowest number most economists look to for a really healthy recovery — but it’s also better than zero, the headline number of new positions created in August, when fears of a double-dip recession really began to take hold.

“We’ve got a modest acceleration and more employment growth then we saw over the summer,” said Nigel Gault, Chief US Economist at IHS Global Insight, a firm offering economic and financial analysis, forecasting and market intelligence.

Domestically, Gault said, things haven’t turned out as bad as people feared. But the global picture emanating from Greece and China looks darker. “At the moment, the U.S. is doing better than most of the rest of the world. But let’s say Europe drops into recession. How far and how long could we outperform them?”

Job gains came in retail, hospitality, health care and business services, with modest gains in temporary work — which can sometimes be an indicator of future job growth. Manufacturing employment — once heralded as the shining star of the recovery — has remained essentially flat since July. Meanwhile, state and local government continued to shed jobs.

The job gains are not coming in primarily high-wage industries, and annual average wage growth is not keeping pace with inflation. Worker in the retail sector — which had the biggest gains last month — pull in median hourly wages of $10.94 an hour, according to the Labor Department, and that sector’s growth is one factor that explains the 2 cents dip in average hourly earnings last month. Another key factor is that the weak labor market provides employees little leverage to bargain with their employers over pay, economists said.

Two million Americans have been out of work for 99 weeks or more — up from 1.5 million last November — according to the Bureau of Labor Statistics. The percentage of workers who are working part time but still seeking full-time work is also up from a year ago, according to a recent Gallup poll.

And the U.S. economy still needs to regain more than 6 million jobs lost during the recession — plus some 4.6 million jobs to account for population growth — to reach pre-recession employment.

It’s stark numbers like these that have led economists to dub the years since the Great Recession officially ended “the jobless recovery.”

“After previous recessions, hiring soared. What has come roaring back this time is profits. They’ve reached a peak,” said Gary Burtless, an economist at the Brookings Institute.

While many Occupy Wall Street protest camps have been cleared around the country, the income inequality that brought thousands of Americans to the streets since mid-September remains as strong as ever, according to this latest government snapshot. And even if job growth began to rebound in coming months, that income inequality, which has been growing for decades now, would still remain.

“Even if we could magically return to where things were in 2007 and the issues of the housing market disappeared, we would still have the three decades of cumulative growing inequality problems,” said Lawrence Katz, Professor of Economics at Harvard University.

Arthur Delaney contributed reporting

“Something good is stirring in the U.S. economy,” Ian Shepherdson, an economist at High Frequency Economics, said in a note to clients.

The unemployment report, one of the most closely watched economic indicators, showed that September and October were stronger months than first estimated. For four months in a row, the government has revised job growth figures higher.

Unemployment was 9 percent in October and has been stuck near or above that level for two and a half years. The last time unemployment was this low was March 2009, two months after President Barack Obama took office.

The government uses a survey of mostly large companies and government agencies to determine how many jobs were added or lost each month. It uses a separate survey of households to determine the unemployment rate.

The household survey picks up hiring by companies of all sizes, including small businesses and startups. It has shown an average of 321,000 jobs created per month since July, compared with an average of 13,000 the first seven months of the year.

“We might finally be seeing new business creation expand again, which is critical to the sustainability of the recovery,” said Diane Swonk, chief economist at Mesirow Financial, a financial services company.

When the economy is improving or slipping into recession, many economists say, the household survey does the better job of picking up the shift because it is more likely to detect small business hiring.

The unemployment report was the latest encouraging indicator for the economy. Other reports this week have shown that factories are producing more, construction is growing, and people are buying more cars.

And Americans spent a record $52.4 billion over the Thanksgiving weekend, according to the National Retail Federation, a trade group. A separate report from MasterCard found spending was up almost 9 percent from last year.

The accelerating debt crisis in Europe has loomed over the economy for months. An economic collapse there would hammer sales of American exports. And if the crisis causes banks to stop lending money, the world economy would suffer.

But there are signs that Europe is moving toward a solution. Earlier this week, six central banks around the world made it easier for commercial banks to borrow American dollars to do business, calming financial markets and buying time for politicians to work something out.

The leaders of Germany and France appear to be pushing for stronger rules to make sure European governments are responsible with their budgets, an approach designed to save the euro currency from collapse.

European leaders meet next Friday for a crucial summit on the matter.

In the United States, about 13.3 million people are counted as unemployed. Private employers added 140,000 jobs in November, while governments shed 20,000. Governments at all level have cut almost a half-million jobs this year.

More than half the jobs added last month were by retailers, restaurants and bars. Professional and business services also rose. Those tend to be higher-paying jobs – engineers, accountants and high-tech workers.

Still, more than 300,000 people stopped their job searches last month, so they were no longer officially counted as unemployed. That accounts for some of the drop in the unemployment rate.

Even with the recent gains, the economy isn’t close to replacing the jobs lost in the recession. Employers began shedding workers in February 2008 and cut nearly 8.7 million jobs for the next 25 months. The economy has regained about 2.5 million.

It had appeared that Obama would face voters next fall with the highest unemployment of any sitting president seeking re-election since World War II. That was the 7.8 percent faced by Gerald Ford when he ran and lost in 1976.

But the 8.6 percent figure makes it more likely that unemployment will fall below that level by next November. That would take stronger and consistent job growth. It takes about 125,000 new jobs a month just to keep up with population growth.

Ronald Reagan faced 7.2 percent unemployment in 1984 and trounced Walter Mondale. Unemployment was 7.8 percent when Obama took office in January 2009.

The economy grew at a 2 percent annual rate in July, August and September. Paul Ashworth, an economist at Capital Economics, estimates growth will speed up to 2.5 percent in the last three months of the year, but slow to 1.5 percent in 2012.

One factor that will figure in is whether Congress extends the Social Security tax cut, which is set to expire Dec. 31. It will give most American households $1,000 to $2,000 extra this year.

Both Democrats and Republicans have expressed interest in extending the tax cut – Obama wants to expand it – but they have disagreed over how to pay for it. The Senate on Thursday defeated plans from both parties on how to do it.

Republicans had proposed paying for the cut by freezing the pay of federal workers through 2015. Obama has already recommended freezing it through 2013. Democrats wanted to raise taxes on people making $1 million or more a year.
HP