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Unemployment rate falls to 8.5 pct., hiring surges

January 6th, 2012 1:29 pm by CHRISTOPHER S. RUGABER

Unemployment rate falls to 8.5 pct., hiring surges

WASHINGTON (AP) — The nation added 200,000 jobs in December in a burst of hiring that drove the unemployment rate to its lowest in almost three years. The figures raised hopes that the economy might finally be healthy enough to power an even stronger job market.

Four long years after the start of a Great Recession that wiped out 8.7 million jobs, a Labor Department report Friday showed that the past six months have been the strongest for job creation in the United States since 2006.

The December gains, spread in industries throughout the economy and far better than economists had expected, sent the unemployment rate to 8.5 percent, the lowest since February 2009. It has fallen four months in a row.

"There is more horsepower to this economy than most believe," said Sung Won Sohn, an economics professor at California State University, Channel Islands. "The stars are aligned right for a meaningful economic recovery."

If economics textbooks and the best hopes of millions of unemployed Americans are confirmed, the economy may be at the start of what is known as the virtuous cycle — a self-sustaining, steadily improving pattern of hiring and spending.

When more Americans are hired, they have more money to spend. And when more money courses through the economy, businesses can justify hiring more people. That leads to more jobs and more demand.

Another pattern, known as the vicious cycle, took hold to devastating effect during the Great Recession. People lost jobs and spent less money, so businesses rang up less sales and were forced to lay off more people.

Finally, the reverse may be happening.

"The labor market is healing," said Diane Swonk, chief economist at Mesirow Financial. She cautioned that "we still have a long way to go — years — to recoup the losses we have endured."

Indeed, the economy added 1.6 million jobs for all of 2011. That is better than the 940,000 it added during 2010 — and far better than the 5 million it lost during 2009, the most bruising year of the Great Recession.

But the nation still has 6 million fewer jobs that it did in December 2007, when the recession began. Economists forecast the nation will add 2.1 million this year.

The unemployment report was the first to be released since Republicans across the country began voting to determine a candidate to face President Barack Obama this fall in an election that will turn on the economy.

Obama appears bound to face voters with the highest unemployment rate of any president running for re-election since World War II. Unemployment was 7.8 percent when Obama took office.

But the president's re-election chances may hinge more on the direction of the unemployment rate. It was 7.2 percent when Ronald Reagan beat Walter Mondale in 1984, but it had fallen from 10.8 percent two years before the election.

Obama, visiting the new Consumer Financial Protection Bureau, said: "We have made real progress. Now is not the time to stop." He called on Congress to extend a tax Social Security payroll tax cut that is due to expire at the end of next month.

Campaigning in New Hampshire for Obama's job, former Pennsylvania Sen. Rick Santorum claimed credit for Republicans, suggesting the gains were tied to voter optimism that a Republican would take the White House.

"There's a lot of concern still," added Santorum, who finished in a virtual tie with Mitt Romney in the Iowa caucuses earlier this week. Another candidate, former House Speaker Newt Gingrich, dismissed the job gains as inadequate.

The report painted a picture of a broadly improving job market. Average hourly pay rose, providing people more money to spend. The average workweek lengthened, a sign that business is picking up and companies may soon need to hire.

The private sector added 212,000 jobs in December. Those gains were offset by 12,000 layoffs by governments.

Hiring increased across industries. Manufacturing added 23,000 jobs, as did the health care industry. Transportation and warehousing added 50,000 jobs. Retailers added 28,000. Even the beleaguered construction industry added 17,000.

Economists cautioned that some of the gains reflected temporary hiring for the holiday season. The government adjusts the figures to try to account for those seasonal factors, but doesn't always get it exactly right.

The gains in transportation and warehousing, for example, reflected a strong increase in hiring for couriers and messengers. That could be because of the jump in online shopping over the holidays, the Labor Department said.

And the economy still faces many challenges, including a likely recession in Europe exacerbated by the debt crisis there. That could drag on the U.S. stock market, making U.S. consumers feel poorer and weighing on their spending.

In a reminder of the threat, U.S. stocks, which had appeared poised for a higher open, sank in morning trading. The Dow Jones industrial average was down 19 points. Analysts blamed a spike in borrowing costs for Italy, an ominous sign for the debt crisis.

"While December's data represent good news, there is no guarantee that January will follow a similar path," said Joshua Shapiro, chief economist at MFR Inc., in a note to clients.

The nation's work force, which includes both people working and those searching for jobs, shrank slightly in December and doesn't look much different from last spring.

That is a concern because a strengthening job market normally draws more applicants. And if more Americans are motivated to start looking for work, the unemployment rate could jump again.

The government only counts people as unemployed if they are actively searching for jobs. Discouraged workers who have given up on looking are not included in the rate.

And some of those who are counted as employed are working part-time, but would rather have full-time work.

A measure that includes those groups, the so-called underemployment rate, was 15.2 percent in December. It has fallen three straight months but remains historically high.

In another positive sign, the number of people who are employed part-time but would prefer full-time fell sharply for the third straight month. It has dropped from 9.3 million in September to 8.1 million in December, the lowest since January 2009.

A more robust hiring market coincides with data suggesting the economy ended the year with some momentum. Holiday sales were solid, and November and December were the strongest months of 2011 for U.S. auto sales.

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AP Economics Writer Paul Wiseman contributed to this report.

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