US unemployment falls to 8.5%

 The US economy added a better than expected 200,000 jobs in December  and the unemployment rate dropped to the lowest level in nearly three years, confirming recent signs that the recovery is gaining pace.

The improvement in payrolls was the strongest in three months and well above expectations of 155,000 new positions. The unemployment rate ticked down to 8.5 per cent in December – the lowest since February 2009 – from a revised 8.7 per cent the previous month. The rate had unexpectedly dropped sharply in November as more discouraged people stopped looking for work. Economists had expected the rate to rise slightly last month as Americans re-entered the workforce.

The US economy created 200,000 jobs in December, improving President Barack Obama’s chances of re-election and the world’s hopes of avoiding a new recession triggered by the crisis in the eurozone.

Jobs growth was strong enough to drive the headline unemployment rate down from 8.7 per cent to 8.5 per cent, the lowest since February 2009, shortly after Mr Obama was inaugurated.

The data confirms that US growth has picked up at a crucial moment when the world is threatened by the eurozone’s sovereign debt problems and a slowdown in China. Analysts said it may herald a new phase for global currency markets.

The dollar index rallied to its highest level in 16 months as investors speculated that better data made it less likely that the Federal Reserve would conduct further quantitative easing, which would create money to pump into the economy. For much of last year, the dollar fell when investors’ appetite for risk increased.

“This is a very significant change in market behavior,” said Hans Redeker at Morgan Stanley in London.

Economists said the December payroll numbers were strong but that job creation was still too slow to heal the woes of the US labour market and bring about a sustainable fall in unemployment.

“The patient is still not well but we are now clearly recovering,” said Sung Won Sohn, professor of economics at California State University.

“The numbers were good, the trend is in the right direction, but with today’s report the hype is exceeding the reality,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

There were several reasons for caution with the data, including a 42,000 increase in courier jobs which may not be sustained after Christmas and an unexpected pick-up in construction work. Increasing cutbacks in government jobs and to the postal service will also drag on payroll growth this year while the main impact from the eurozone crisis may be yet to come.

Manufacturing added 23,000 jobs and the private service sector added a total of 164,000 positions.

The White House emphasised a downward trend in unemployment that is seen as crucial to Mr Obama’s prospects in a November election that Republicans will try to turn into a referendum on his economic record.

“Today’s employment report provides further evidence that the economy is continuing to heal from the worst economic downturn since the Great Depression,” said Alan Krueger, chairman of Mr Obama’s Council of Economic Advisers.

But Republicans pointed out that much of the recent fall in the unemployment rate was driven by people who gave up their search for work and left the labor force.

“While the last month’s rise in the number of payroll jobs is welcome, the decline in labor force participation masks the true magnitude of the nation’s unemployment problem,” said Kevin Brady, a Republican congressman from Texas. “To make a fair assessment of the health of the nation’s labor market you need to look at labour force participation and job growth.”

Labor force participation remained stuck at 64%, the lowest level since the 1980s, reflecting job growth that is now strong enough to either keep up with population growth or bring down unemployment among the existing workforce – but not both.

Total job gains for 2011 hit 1.64m, the best annual total since 2006, but still far from regaining the nearly 9m jobs lost during the recession.

“Our reaction to these numbers, that they’re positive, can’t ignore the fact that we are still well below where we were before the recession,” said Patrick O’Keefe, director of economic research at J.H. Cohn.

He noted that the downward trend in unemployment – December marked the fourth month of decline – was reflective of growing optimism among US households. “Americans, based on the experiences of family members and neighbours, saw some marginal improvement in the labor number and have been reporting that in their answers to sentiment surveys and in their behavior, as seen in retail sales,” he said.

Friday’s report seemed to confirm recent indications of an improving job market. Weekly readings of initial claims for unemployment benefits have come in below 400,000 for eight of the last nine weeks, suggesting that lay-offs may be abating.

In the most recent set of claims data released on Thursday, the labor department said the four-week moving average fell to 376,500, the lowest level since June 2008.

Manufacturing employment has accelerated, according to a survey earlier in the week from the Institute for Supply Management, which said its employment measure hit the highest level since June as US factory activity grew at the fastest pace in six months.

Services industries were also strong, adding 152,000 workers, many at retailers who hired extra help over the holidays. Construction, a sector that has been hard hit by the downturn and the lagging housing market, added 17,000 workers in December.

Job growth was revised in both October and November, showing a net 8,000 fewer positions were added over the two months.

About GREGinSD

A Generation X|Y'er that resides in beautiful San Diego, Ca.
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