Unemployment Improving Slowly But Surely

Yesterday's unemployment rate declined from an upwardly revised November rate of 8.7% to 8.5% at year end. The reported 200,000 number of new jobs created in December was a pleasant plus as well.

While the mildly positive report was nothing to get excited about, the monthly improvement does represent good news.

The December numbers confirm the good news that we're going to avoid a recession in 2012, but they also confirm the bad news that we're not likely to see an unemployment rate below 8% for at least another year.

Of course, these monthly numbers are subject to revision, so it's always best to look at the longer term trend as opposed to any single month's results. In that regard, the trend continues to be marginally favorable, but we have a long way to go before declaring victory.

Job Growth Accelerates summarizes the current state of the still weak employment situation succinctly:

"The economy added 1.6 million jobs in 2011, bringing nonfarm payrolls to about 131.9 million last month. That is roughly 6.1 million less than January 2008, before the recession started damaging the labor market. In total, the downturn and its aftermath wiped out about 8.8 million jobs.

Economists generally believe that the U.S. needs to add more than 125,000 jobs a month just to keep up with population growth."

Later the article pours a little more cold water on the December jobs report:

"Friday's Labor Department data showed the biggest job gains for transportation and warehousing, which benefited from seasonal hiring; retail; manufacturing; health care; and food services.

Still, for December there were 13.1 million unemployed, according to the household survey. A broader measure that accounts for both job seekers and part-time workers who would prefer to be working full time—the so-called underemployed—fell to 15.2% from 15.6% in November.

Friday's report shows that Americans' hourly earnings rose by four cents to $23.24. Wages are up by 2.1% over the past 12 months, not keeping pace with overall inflation at 3.4%."

U.S. Gains 200,000 jobs in December has a slightly different take on the slowly developing favorable trend:

"Over the past six months, the U.S. has added an average of 142,000 jobs. Yet improved job growth in the second half of 2011 still falls short of what’s necessary to get the U.S. fully back on track.

The U.S. needs to add at least 250,000 jobs a month for several years, economists say, to reduce the jobless rate to pre-recession levels and boost annual growth well above 3% — a level usually associated with healthy recovery.

The economy has expanded sluggishly since the end of the 2007-2009 recession, mainly because of weak hiring. Businesses do not want to add workers unless they are assured of higher demand for their goods and services."

My view remains that, although we'll successfully avoid another recession, factors such as (1) a continuing low level of construction activity, (2) reduced public sector employment and most importantly, (3) weak consumer spending attributable to high unemployment and ongoing household debt liquidation, will combine to restrain economic growth through 2012.

Thus, there is no miracle recovery clearly in sight, and there are lots of serious economic problems still facing us, not the least of which is European weakness and instability.

All that said, our U.S. economy will continue to chug along in 2012, albeit rather slowly. As we keep on keeping on, and assuming that Europe doesn't fall apart, the economy and employment levels will be restored to good health over time.

The reduction in December's unemployment rate to 8.5%, when coupled with the 200,000 new jobs created, provide us with justification to designate today's economic environment as a glass "half full." However, it's a very small glass.

Thanks. Bob.