American economy gains steam as 2 lakh jobs are added

Employers in the United States added 200,000 jobs last month, the Labour Department said on Friday, a report that came on the heels of a flurry of heartening economic news and signaled gathering momentum in the recovery.

Consumer confidence lifted, factories stepped up production and small businesses showed signs of life. The nation’s employment rate fell to 8.5 per cent, its lowest level in nearly three years.

It was the sixth consecutive month that the economy showed a net gain of more than 100,000 jobs, not enough to restore employment to pre-recession levels but enough, perhaps, to cheer President Obama as he enters the election year.

Obama is calculating that he can make a credible argument that he took over a country in an economic disaster and slowly walked it back. Still, his response to the jobs report was more tempered than triumphant. “We have made real progress,” Obama said during a visit to the new Consumer Financial Protection Bureau. “Now is not the time to stop.”

He called on Congress to extend a payroll tax cut that is set to expire at the end of February.  Obama apparently does not want to repeat the mistake of over-enthusiasm. In early 2010 and again in early 2011, the White House was quick to trumpet the news when the economy made moves toward recovery that turned out to be feints, going so far as to refer to the summer of 2010 as “recovery summer.”

There are reasons for caution. Many economists do not expect growth in 2012 to keep up the pace of the fourth quarter of last year. Expectations are generally positive, but very modest.

And the president remains vulnerable to attack on his economic record. “This president doesn’t understand how the economy works,” the winner of this week’s Republican caucus in Iowa, Mitt Romney said at a campaign stop in South Carolina, shortly after the jobs report was released.

But economists like Markus Schomer of PineBridge Investments now have a much rosier view than they had back in August, after a spring and summer of lost economic ground and a demoralising political debate over the nation’s debt ceiling. At that time, Schomer thought, as many did, that government dysfunction was paralysing the economy. Now, he is ratcheting up his growth forecast for 2012.

“The improving trend in the US labour markets is not just a temporary blip, but seems to be something quite sustainable,” he said.

This is not to say that there are no potential headwinds as last year’s signs of momentum were dashed by global factors like gas prices and the earthquake in Japan.

“I’m a little bit concerned that Iran could be this year’s Japan,” Schomer said. Among the pieces of good news in the report is that the drop in the jobless rate came largely from real gains, not from discouraged workers giving up the job hunt. The new jobs were spread broadly across industries, with transportation and warehousing, retail, manufacturing and restaurants all adding jobs.

In addition, average wages on private payrolls ticked up by 4 cents an hour, though over the year wages have not kept pace with inflation. And government downsizing, which has been a drag on the jobs numbers, slowed in December, with only 12,000 public jobs lost. The private sector added 212,000 jobs.

In another positive sign, the unemployment rate seemed to be dropping at a faster rate than the number of new jobs would imply. New businesses and the newly self-employed are less likely to be counted by the Labour Department’s survey of businesses, from which the job numbers are drawn, than by the department’s survey of households, from which the unemployment rate is calculated. The December rate of 8.5 percent was down from a revised 8.7 percent in November.

A broader measure of unemployment, which includes people who can find only part-time work and people who have stopped looking for work, declined to 15.2 per cent. A year earlier, it was 16.6 per cent. Over the same period, the United States added 1.6 million jobs.

Economists continued to warn of potential dangers ahead, including the crisis in the euro zone, increased tensions with Iran which could lead to higher gas prices and the expiration of the Bush tax cuts. Congress could decline to continue extensions of the payroll tax break and unemployment benefits that have given spending a boost. Loans are still hard to obtain, and home prices have continued to fall.

Still, context is everything. The same modest upward trends, that a few months ago were dismissed as far too anemic to be noticeable are now greeted with tentative praise. “People were very much thinking that the sky was falling,” said the Chief United States economist at RBC Capital Markets, Tom Porcelli.

“It’s no small victory that we’re up here, even with all these headwinds.” Economists suggested that the good news and consumer confidence might feed off each other, leading to further increases in spending that, they hope, will be followed by the wage increases necessary to sustain that spending.

Bullish types were quick to trumpet the American economy’s resilience. “This is the real thing,” said High Frequency Economics’ Ian Shepherdson. “This is finally the economy throwing off the shackles of the credit crunch.” But there is a deep hole to climb out of.

There are still more than 13 million jobless Americans, 5.5 million of whom have been unemployed for half a year or more. And even those finding work are often taking salary cuts, with job creation concentrated in low-wage sectors. “We need reports this strong and stronger for many years to come to bring our labour market back to health,” said Economic Policy Institute’s Heidi Shierholz.

The report was brighter for some groups than others. Unemployment among men continued to decline, while for women it stayed flat, in part because women held a disproportionate share of the state and local government jobs that were lost, according to an analysis by the Institute for Women’s Policy Research. Over all, women left the labour force, which includes job seekers as well as job holders, and men joined it. Unemployment among teenagers ticked down a bit, but more than one in five Iraq and Afghanistan veterans were unemployed, double the rate of the previous year.

The Chief Executive of Chobani, the yogurt company, Hamdi Ulukaya said he was building a new plant in Idaho, investing $100 million in upgrades to the company’s plant in South Edmeston, New York and hiring hundreds of workers.

“The worst is over,”  Ulukaya said. Stock markets seemed to have already factored in the news, which was foreshadowed in a report by ADP, the payroll processing company that showed a gain of 325,000 private sector jobs in December. ADP’s reports do not always correlate with the Labour Department’s findings, but they can provide additional insight.

Diane Swonk, an economist with Mesirow Financial, said most of the new jobs in the ADP report were at small businesses and that generally only newer small businesses use a payroll company.

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