Unemployment rate falls to 8.5% as economy adds 200K jobs

Posted on January 6, 2012

The U.S. job market strengthened in the second half of 2011 and added 200,000 jobs in December while the unemployment rate fell to 8.5% from a revised 8.7% a month earlier.December’s biggest growth came in transportation, especially courier services that staffed up for the holidays, and in health care and manufacturing, according to the U.S. Bureau of Labor Statistics.

“It would have been even better without the drag from Europe,” said John Canally, economic strategist at LPL Financial, a stock brokerage firm in Boston. “The Europe situation created uncertainty, and uncertainty was used as a reason not to hire until now.”

It was an even stronger finish to the year than economists had forecast. They had forecast that employers added a net 150,000 jobs last month, according to a survey by Factset. They also had predicted that the unemployment rate ticked up to 8.7% from November’s 8.6%, which was the lowest rate since March 2009.

As it turned out, November’s unemployment rate was revised up in this report, to 8.7%.

The better-than-expected monthly gain of 212,000 private-sector jobs means American businesses have replaced more than 3 million of the 4.2 million private-sector jobs lost the past 13 months. The private-sector jobs gained since employment bottomed in February 2010, in percentage terms, is the strongest recovery since the rebound after the 1990-92 recession, when U.S. businesses added 4.2 million jobs in the same amount of time by late 1993.

Women took only about 89,000 of the new jobs, continuing a trend that has seen men go back to work at a much faster pace than women in the past year. Earlier in the recession, job losses were concentrated in majority-male industries, such as construction and finance, and more recently women have been hurt by cuts in government employment, as well as the greater willingness of men to take jobs in retailing.

Those trends continued in December. Women added 90,000 private-sector jobs, or about 42% of new positions, but a small loss in government work reduced their net employment gain to 89,000 jobs. Women’s representation in the workforce was unchanged at 49.4%.

Among the report’s pluses was that the unemployment rate fell even though participation in the workforce stayed stable, according to BLS. About half of November’s drop in unemployment was caused by a spike in the number of workers who had stopped looking for a job. The report on private-sector employment by payroll processor ADP, released Thursday, also showed strong growth in hiring by small and medium-size businesses, whose owners’ confidence is rising, according to the most recent survey by the National Federation of Independent Business.

Among the negatives is that many of the new jobs were concentrated in a handful of low-paying industries, said Steve Blitz, chief economist at ITG Investment Research in New York. About 44% of new positions were at courier services or bars and restaurants, he said.

President Obama still could face voters in November with the highest unemployment rate of a sitting president seeking election since World War II. Unemployment was 7.8% when Obama took office in January 2009.

But he could benefit if the unemployment rate continues to dip. History suggests that presidents’ re-election prospects depend less on the unemployment rate itself than on the rate’s direction in the months preceding Election Day.

More robust hiring coincides with other positive data that show the economy ended the year with some momentum.

Weekly applications for unemployment benefits have fallen to levels last seen more than three years ago. Holiday retail sales were solid. And November and December were the strongest months of 2011 for auto sales.

Many businesses say they are ready to increase hiring in early 2012 after seeing stronger consumer confidence and greater demand for their products and services.

The government uses a survey of mostly large companies and government agencies to determine how many jobs were added or lost each month. It uses a separate survey of households to determine the unemployment rate.

The household survey picks up hiring by companies of all sizes, including small businesses and companies just getting off the ground. It also includes farm workers and the self-employed, who aren’t included in the survey of business payrolls.

The household survey has shown an average of 321,000 jobs created per month since July, compared with an average of 13,000 the first seven months of the year.

When the economy is either improving or slipping into recession, many economists say, the household survey does the better job of picking up the shift because it detects small-business hiring.

Economists surveyed by the Associated Press project that the economy will generate an average of 175,000 jobs per month this year. That would be a step up from average monthly gains of 130,000 last year and 78,000 in 2010.

The pickup in hiring reflects some modest improvement in the economy. Growth will likely top 3% at an annual rate in the final three months of this year, economists expect. That would be a sharp improvement over the 1.8% growth in the July-September quarter.

Even so, many economists forecast that growth could slow to roughly 2% this year. Europe is almost certain to fall into recession because of its financial troubles. And without more jobs and higher incomes, consumers may have to cut back on spending. That could drag on growth in 2012.

The Associated Press