FORECASTS ON TARGET
As the Great Recession reached its height in late 2009 and the unemployment rate hit 10 percent, economists looked ahead and tried to foretell when “normal” unemployment — around 5 percent — would return. Even the optimists said it would take years. The mainstream prognostication: in the middle of the decade to come. Even if the decline in unemployment accelerates from its so-far painfully slow pace — an average of 17 months for each percentage point drop — it could easily be 2015 or even 2016 before unemployment falls to historically average levels.
— Bill Steiden
The job market is showing signs of the consistent gains the nation has awaited in the 4½ years since the Great Recession.
Employers added 203,000 jobs in November, and the unemployment rate fell to 7 percent, a five-year low, the Labor Department reported Friday. Four straight months of robust hiring have raised hopes that 2014 will be the year the economy returns to normal.
The steady job growth could also hasten a move by the Federal Reserve to reduce its stimulus efforts.
Stock investors were heartened by the report. The Dow Jones industrial average jumped 198 points.
A steadily improving job market could give consumers and business executives the confidence to keep spending and investing, even if a pullback by the Fed leads to higher interest rates. The Fed has been buying bonds each month to try to keep long-term borrowing rates low to spur spending and growth.
The celebration on Wall Street suggested that investors think a healthier job market, if it fuels more spending, would outweigh higher borrowing rates caused by a Fed pullback.
“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 economy has added a four-month average of 204,000 jobs from August through November, up sharply from 159,000 a month from April through July.
“The consistency (in hiring) is actually reassuring,” said Doug Handler, chief U.S. economist at IHS Global Insight. “Slow and steady is something you can plan and build on.”
The Fed could start slowing its bond purchases as soon as its Dec. 17-18 meeting. Some economists think the Fed may only telegraph a move at that meeting and wait until early next year to cut back.
Even if the Fed does start reining in its stimulus, most economists think growth will accelerate next year. Drew Matus, an economist at UBS, forecasts that growth will top 3 percent in 2014, from roughly 2 percent this year. That would be the first time growth had topped 3 percent for a full calendar year since 2005.
In addition to the solid job gains and the drop in unemployment, Friday’s report offered other encouraging signs:
• Higher-paying industries are adding jobs. Manufacturers added 27,000, 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 workweek rose to 34.5 hours from 34.4. A rule of thumb among economists is that a one-tenth of an hour increase in the workweek is equivalent to adding 300,000 jobs.
• Hiring was broad-based. In addition to higher-paying industries, retailers added 22,300 jobs, and 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 added a combined 7,000 jobs.
The report did contain 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, at 63 percent.
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.
Low-wage industries also still account for a disproportionate share of jobs added. About 45 percent of jobs created in the past year have been in retail, hotels, restaurants and entertainment, temporary positions, and home health care.
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 have been out of work for six months or more will lose unemployment aid if a 5-year-old program to provide extra benefits expires Dec. 28. The Congressional Budget Office has estimated the cost of an extension at $25 billion. Some Republicans have balked at the cost.
But on Thursday, House Speaker John Boehner said he was willing to consider extending the program.
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