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Take a Closer Look Before Cheering the November U.S. Jobs Report

The Department of Labor today (Friday) released the November U.S. jobs report, which showed the U.S. economy added 146,000 jobs last month, handily beating most economists' expectations.

The addition pushed the unemployment rate down from an unhealthy 7.9% to a still elevated 7.7%. That is the lowest level in four years, since December 2008.

Projections for the unemployment level ranged for it hold steady at 7.9% or rise to up to 8.1%.

But the reasons for the drop aren't as encouraging as the lowered rate itself.

The Real Story of the November U.S. Jobs Report

The reason behind the surprising drop was because more dejected workers simply left the labor force. Some 350,000 people, unable to find work and no longer looking for a job, have dropped off the radar and were not counted among the slew of individuals still out of work.

The labor participation rate fell 20 basis points to 63.6%. Without this drop in the labor force, the unemployment rate would have remained at 7.9%.

Three years after the end of the 2007-2009 recession, the labor force participation rate remains extremely weak. If the rate reflected normal levels, the unemployment rate would be considerably higher.

Also contributing to the unexpected uptick was early seasonal retail hiring, instead of long-term sustainable positions. Retail was a key jobs producer in November, adding 53,000 to payrolls.

That's partly due to Thanksgiving being earlier this year than usual. Plus, more stores kicked-off the holiday shopping spree much before the usual Black Friday start.

These factors "suggest an asterisk will have to be put alongside the monthly non-farm report," Bloomberg senior economist Joseph Brusuelas wrote in today's Bloomberg Economics Brief.

Fiscal Cliff and the U.S. Jobs Report

The drop in the unemployment was also unexpected given the mounting fiscal cliff fears.

Employers across all sectors have implemented hiring freezes, held off hiring and laid off workers in anticipation of the possible tax increases and automatic spending cuts.

Going over the cliff, the Congressional Budget Office has cautioned, will thrust the already ailing U.S. economy into recession in 2013, by removing between 3%-4% of total spending.

Businesses will shutter and millions of jobs will be eliminated.

As The Wall Street Journal pointed out, a typical U.S. recession propels the unemployment rate up more than three percentage points. Even light recessions add at least two points to it.


If we fall over the cliff and into a new recession next year, as we are still trying to claw our way out the "great" one, we could be looking at 9%, 10% or even 11% unemployment.

A healthy unemployment rate is about 4% to 6%. Our pre-Great Recession rate was about 5%.

To get to that level, the economy has to create roughly 12 million jobs, because so many have been lost. Plus there are constantly new people entering the workforce. Yet, with more and more workers delaying retirement because they can't afford to enjoy the golden years, they are not making way for these new job seekers.

The next U.S. jobs report will be released Jan. 4, 2013.

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