Unemployment Rate Hits 5-Year Low; Eyes on Fed Taper

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November jobs report
Mike Groll/AP
By Lucia Mutikani

WASHINGTON -- U.S. employers hired more workers than expected in November and the jobless rate fell to a five-year low of 7.0 percent, heightening expectations the Federal Reserve will soon start ratcheting back its bond-buying stimulus.

Nonfarm payrolls increased by 203,000 new jobs last month, the Labor Department said Friday.

The unemployment rate dropped three tenths of a percentage point to its lowest level since November 2008 as some federal employees who were counted as jobless in October returned to work after a 16-day partial shutdown of the government.

Economists polled by Reuters had forecast payrolls rising only 180,000 last month and the unemployment rate falling to 7.2 percent from 7.3 percent.

Job gains for September and October were revised to show 8,000 more jobs created than previously reported, lending more strength to the report. Other details were also upbeat, with employment gains across the board, average hourly earnings rising and the workweek lengthening.

In addition, the jobless rate fell even as the participation rate -- %VIRTUAL-article-sponsoredlinks%the share of working-age Americans who either have a job or are looking for one -- bounced back from a 35½-year low touched in October.

"The U.S. labor market is still far from healed, but it certainly is moving in the right direction," said Eric Stein, co-director of the Global Income Group at Eaton Vance Investment Managers in Boston.

U.S. stocks bounced higher at the open, the dollar rose against the euro and the yen, and U.S. benchmark Treasury yields hit a three-month high as traders increased bets the Fed could reduce its bond purchases as early as its next meeting on Dec. 17-18.

The central bank has been buying $85 billion in Treasury and mortgage-backed bonds each month to hold long-term borrowing costs down in a bid to spur a stronger economic recovery.

Despite the jobs data, many economists said the central bank was still likely to hold off reducing its purchases until January or March to ensure the economy was on solid ground.

"This number puts a December taper on the table, but it isn't a certainty," said Stein.

Mixed Economic Data

Economic data so far for the fourth quarter have been mixed, with labor market and consumer spending indicators firming. However, the housing market and business spending have slowed.

Economists believe the Fed will probably not want to pull back on its stimulus before lawmakers on Capitol Hill strike a deal to fund the government. That could come as soon as next week, however. Congressional aides have said negotiators were down to the final details as they tried to close in on a deal.

A separate report from the Commerce Department showed consumer prices were steady in October, after having risen by 0.1 percent for three straight months. Over the past 12 months, prices rose 0.7 percent, the smallest gain since October 2009.

Excluding food and energy, prices were up just 0.1 percent for a fourth straight month. These so-called core prices were up only 1.1 percent from a year ago.

Both inflation measures remained well below the Fed's 2 percent target, and some economists said they provided another reason for the central bank to move cautiously in pulling back its stimulus.

"I don't think the Fed is in a big rush to do anything drastic in the absence of inflation," said Michael Marrale, a managing director at ITG in New York. "A few strong jobs numbers does not mean we are out of the woods."

Details Upbeat

Job gains in November were broad-based. Private-sector payrolls rose 196,000. But government employment also increased as hiring by state and local governments offset a decline in federal employment.

Manufacturing payrolls moved up 27,000, rising for a fourth straight month. Construction employment advanced 17,000, adding to October's gains even as the housing recovery has slowed.

Retail employment slowed, adding 22,300 last month compared to 45,800 in October. A late Thanksgiving holiday could have resulted in some of the seasonal hiring not being captured in November's report.

Leisure and hospitality, as well as professional and business services payrolls showed gains, but at a slower pace than in October.

The report also showed average hourly earnings rose by four cents last month, while the length of the workweek edged up to an average of 34.5 hours from 34.4 hours - both bullish signs for the economy.

9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Unemployment Rate Hits 5-Year Low; Eyes on Fed Taper
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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