Somehow the U.S. economy appears to be getting better, even as the rest of the world is looking worse.
In the midst of the European debt crisis, lingering instability in the oil-rich Middle East and concerns about a Chinese economic slowdown, the U.S. unemployment rate unexpectedly dropped last month to 8.6 percent, its lowest level in two and a half years. The Labor Department also said that the nation’s employers added 120,000 jobs in November and that job growth for the previous two months was better than initially reported.
That looks like good news for President Barack Obama as he heads into the 2012 presidential election — especially since just a few months ago the end seemed to be nigh.
“If you go back to August, all sorts of people were telling us that the economy was headed straight into recession,” said Paul Ashworth, senior U.S. economist at Capital Economics. “Since that point, we’ve become more and more worried about the eurozone and other areas of the global economy, but somehow, at least for the moment, the U.S. economy seems to be shrugging all that off.”
Even so, part of the reason the jobless rate fell so low was that 315,000 unemployed workers simply stopped applying for jobs.
And resilient as the economy seems to have been since this summer, the fate of the fragile recovery is still tied to external — especially European — events.
So far Europe’s problems have been relatively contained to the Continent. Many economists worry that a disorderly default of Greece or Italy, which still looks alarmingly possible, could plunge Europe into a depression.
If recent history is any guide, even a modest shock wave from across the ocean could throw the U.S. economy off course; this year, a series of shocks from higher oil prices, the Japanese earthquake and the stalemate over the U.S. debt ceiling managed to drain the energy from a newly rejuvenated recovery.
Shrinking labor force
November’s drop in unemployment was a welcome relief, given that the jobless rate had been stuck at 9 percent for most of 2011. It is now at the lowest level since March 2009; the rate has been above 8 percent for 33 months.
The share of workers who were unemployed fell in November partly because some people found jobs and partly because some discouraged workers dropped out of the labor force altogether. That left the share of Americans participating in the workforce at a historically depressed 64 percent, down from 64.2 percent in October.
A separate survey of employers, which economists pay more attention to than the unemployment rate, found that companies added 120,000 jobs last month, after adding 100,000 jobs in October.
Signs of resilience
These numbers were not particularly impressive by historical standards — payroll growth was just about enough to keep up with population growth — but there were other signs of resilience.
Companies have been taking on more and more temporary workers, suggesting that more permanent hiring may be in the cards. What is more, help-wanted advertising, retail sales and auto sales have risen; jobless claims have fallen, and businesses seem to be getting loans more easily. Perhaps most encouraging was a recent survey of small businesses that found hiring intentions to be at their highest level since September 2008, when Lehman Brothers collapsed.
“Small businesses were cheering up at the end of last year, but then got clobbered by the jump in oil prices, the Japanese earthquake and then the debt ceiling fiasco,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics. “Small businesses employ half the workforce, and we need them on board.”
Still, serious concerns remain about the economy’s ability to weather the financial and economic turmoil from abroad. The public sector continues to shed workers at the federal, state and local level. And excluding the hundreds of thousands who have left the labor force, the country still has a backlog of more than 13 million unemployed workers, whose average period of unemployment is at an all-time high of 40.9 weeks.
“They say businesses are refusing to look at résumés from the unemployed,” said Esther Perry, 59, of Bedford, Mass., who participated in a recent report on unemployed workers put together by USAction, a liberal coalition. “What do you think my chances are? Once unemployment runs out, I don’t know what I will do.”
Even those with jobs are in weak positions. Average hourly earnings fell 0.1 percent in November, and a Labor Department report released Wednesday found that the share of national income going to labor was at an all-time low last quarter.
These softer spots in Friday’s numbers underscored just how much Obama needs additional stimulus, a tidy and fast resolution to the European debt crisis or some other economic breakthrough to reinvigorate the job market before the 2012 presidential election.
“As president, my most pressing challenge is doing everything I can every single day to get this economy growing faster and create more jobs,” Obama said Friday in Washington.