US unemployment rate falls to 5-year low
WASHINGTON (AP) — The U.S. job market has been recovering fitfully for three years. Now, it’s starting to show consistency.
Employers added 203,000 jobs in November, and the unemployment rate fell to 7 percent, a five-year low. Stock investors were heartened by the news. The Dow Jones industrial average surged 200 points, or 1.3 percent, in afternoon trading.
The economy added an average of 204,000 jobs from August through November, up sharply from 159,000 a month from April through July. The robust gain suggested that the economy will begin to accelerate.
The job market has shown signs of strengthening at other times since the recession ended 4½ years ago, only to weaken and discourage hopes. Some economists say this time, employers may have enough confidence in the economy and consumer demand to step up hiring. A sturdier job market would, in turn, accelerate Americans’ spending and energize economic growth.
“It’s hinting very, very strongly that the economy is starting to ramp up, that growth is getting better, that businesses are hiring,” said Joel Naroff, president of Naroff Economic Advisors.
The job growth has also fueled speculation that the Federal Reserve will scale back its economic stimulus when it meets later this month.
It “gives the Fed all the evidence it needs to begin tapering its asset purchases at the next ... meeting,” said Paul Ashworth, an economist at Capital Economics.
The unemployment rate has fallen nearly a full percentage point since the Fed began buying bonds in September 2012 and has reached 7 percent earlier than most analysts had expected.
In June, Chairman Ben Bernanke had suggested that the Fed would end its $85 billion in monthly bond purchases after the unemployment rate reached 7 percent. The Fed’s bond purchases have been intended to keep borrowing rates low.
Bernanke later backed away from the 7 percent target. He cautioned that the Fed would weigh numerous economic factors in any decision it makes about its bond purchases. Many economists still think the Fed won’t begin to cut back until January or later.
While the Fed weighs its options, U.S. employers may finally be gaining enough confidence in the economy, 4½ years after the recession officially ended, to ramp up hiring. In addition to the solid job gain and the drop in unemployment, Friday’s report offered other encouraging signs:
— Higher-paying industries are adding more jobs. Manufacturers added 27,000 jobs, the most since March 2012. Construction companies added 17,000. The two industries have created a combined 113,000 jobs over the past four months.
— Hourly wages are up. The average rose 4 cents in November to $24.15. It’s risen just 2 percent in the past year. But that’s ahead of inflation: Consumer prices are up only 0.9 percent in that time.
— Employers are giving their workers more hours: The average work week rose to 34.5 hours from 34.4. A rule of thumb among economists is that a one-tenth hourly increase in the work week is equivalent to adding 300,000 jobs.
— Hiring was broad-based. In addition to higher-paying industries, retailers added 22,300 jobs, restaurants, bars and hotels 20,800. Education and health care added 40,000. And after years of cutbacks, state and local governments are hiring again. In November, governments at all levels combined added 7,000 jobs.
Still, the report contained some sour notes: Many Americans are still avoiding the job market, neither working nor looking for work. That’s one reason the unemployment rate has fallen in recent months. The percentage of adults either working or searching for jobs remains near a 35-year low.
And America’s long-term unemployed are still struggling. More than 4 million people have been out of work for six months or longer. That figure was essentially unchanged in November. By contrast, the number of people who have been unemployed for less than six months fell last month.
The steady decline in unemployment, from a high of 10 percent four years ago, is welcome news for the White House. But Jason Furman, President Barack Obama’s top economic adviser, said the plight of the long-term unemployed points to the need to extend emergency unemployment benefits.
About 1.3 million people who’ve been out of work for six months or more will lose unemployment aid if a 5-year-old program to provide extra benefits expires on Dec. 28. The Congressional Budget Office has estimated the cost of an extension at $25 billion.
Friday’s jobs report follows other positive news. The economy expanded at an annual rate of 3.6 percent in the July-September quarter, the fastest growth since early 2012, though nearly half that gain came from businesses rebuilding stockpiles. Consumer spending grew at its slowest pace since late 2009.
But if hiring continues at its current pace, a virtuous cycle will start to build: More jobs typically lead to more pay, more spending and faster growth.
That said, more higher-paying jobs are needed to sustain the economy’s momentum. Roughly half the jobs that were added in the six months through October were in four low-wage industries: retail; hotels, restaurants and entertainment; temp jobs; and home health care workers.
Consumers have been willing to spend on big-ticket items. Autos sold in November at their best pace in seven years, according to Autodata Corp. New-home sales in October bounced back from a summer downturn.
But early reports on holiday shopping have been disappointing. The National Retail Federation said sales during the Thanksgiving weekend — probably the most important stretch for retailers — fell for the first time since the group began keeping track in 2006.
AP Economics Writer Josh Boak and AP Writer Jim Kuhnhenn contributed to this report.
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