WASHINGTON (Reuters) – The U.S. unemployment rate tumbled to a 2-1/2 year low in November, even though the pace of hiring remained too slow to suggest a significant acceleration in the labor market recovery.
Nonfarm payrolls increased by 120,000 jobs last month, the Labor Department said on Friday, and the jobless rate dropped to 8.6 percent, the lowest since March 2009, from 9.0 percent in October.
It was the biggest monthly decline since January. While part of the decrease was due to people leaving the labor force, the household survey from which the department calculates the unemployment rate also showed solid gains in employment.
“The economy is continuing to head in the right direction,” said Millan Mulraine, senior macro strategist at TD Securities in New York. “However, the ultimate test of the sustainability of the recovery is for the economy to create a sufficient number of jobs to sustain a consumer-led rebound in activity.”
“On this measure, this report falls short,” he said.
Although the gain in the number of jobs created as measured by the survey of employers was relatively modest, it marked a pick-up from October’s upwardly revised 100,000 increase.
In all, 72,000 more jobs were created in October and September than previously reported.
The retail sector accounted for more than a third all new private sector jobs in November as shops geared up for a busy holiday season, but average earnings fell two cents.
So far data ranging from manufacturing to retail sales suggest the U.S. economy’s growth pace could top 3 percent in the fourth quarter, an acceleration from the third quarter. In contrast, much of the rest of the world is slowing and the euro zone appears to have already fallen into recession.
FED MAY STILL ACT
Stocks on Wall Street rose on both the employment report and growing optimism of a solution to the European debt crisis. Prices for U.S. government debt rose and the dollar gained against a basket of currencies.
The report could temper the appetite among some Federal Reserve officials to ease monetary policy further.
In forecasts released earlier this month, the Fed said the jobless rate would likely average 9 percent to 9.1 percent in the fourth quarter. It did not expect it to drop to an 8.5 percent to 8.7 percent range until late next year.
“The drop in the unemployment rate may make them a little less antsy to pull out the big guns, but there is still not enough evidence of sustained, above-trend growth to get them to stop worrying about downside risks,” said Michael Feroli, an economist at JPMorgan in New York.
However, it is unlikely to take much pressure off President Barack Obama, whose economic stewardship will face the judgment of voters next November.
Obama used the report to press Congress to extend a payroll tax holiday which expires this month. Economists have warned that failure to renew the tax cut would a significant drag on the recovery next year.
“Now is not the time to slam the brakes on the recovery, right now its time to step on the gas,” Obama said.
ROBUST HOUSEHOLD JOB GAINS
While the government’s survey of employers has shown a still-tepid pace of job growth, its separate poll of households has shown robust jobs gains for four straight months amounting to 1.28 million.
Analysts were unperturbed by the exit by 315,000 people from the labor force last month, noting that more people had piled in over the last three months. If the labor participation rate had held steady, the unemployment rate would have fallen less dramatically to 8.9 percent.
The expiration of extended long-term unemployment benefits at the end of December may have contributed to the big drop in the labor force, as well as some of the so-called baby-boomers retiring.
In order to qualify for unemployment benefits, recipients have to be actively looking for work.
“It is likely that many long-term unemployed workers are dropping out as their unemployment insurance benefits expire. Many of these workers will likely stay out of the job market permanently,” said Sophia Koropeckyj, a director of research at Moody’s Analytics in West Chester, Pennsylvania.
Also pointing to the improving labor market tone, a broad measure of unemployment that includes people who want to work but have given up looking for jobs and those working only part time for economic reasons dropped to a 2-1/2 year low of 15.6 percent in November from 16.2 percent in October.
Last month, the private sector added 140,000 jobs and government employment fell 20,000. Elsewhere, retail employment surged 49,800, the most in seven months.
Construction payrolls fell for second straight month, while factory jobs edged up 2,000. Temporary hiring — seen as a harbinger for future hiring – increased 22,300.