MarketView for December 2

Unemployment Falls To A 2-1/2 Year Low

According to a report released by the Labor Department Friday morning, the rate of unemployment rate fell to a 2-1/2 year low in November, even though the pace of hiring remained too slow to suggest a significant acceleration in the labor market recovery. Nonfarm payrolls increased by 120,000 jobs, the Labor Department said and the jobless rate dropped to 8.6 percent, the lowest since March 2009, from 9 percent in October.

It was the largest monthly decline since January. While part of the decrease was due to people leaving the labor force, the household survey from which the department calculates the unemployment rate also showed solid gains in employment.

Although the gain in the number of jobs created as measured by a survey of employers was relatively modest and most of the hiring was concentrated in the retail sector, the rise in employment topped October's upwardly revised increase in the number of jobs created, in this case 100,000. In all, 72,000 more jobs were created in October and September than previously reported.

The report could temper the appetite among some Federal Reserve officials to ease monetary policy further, although it is unlikely to be much help to President Barack Obama in his bid for a second term.

In forecasts released earlier this month, the Fed said the jobless rate would likely average 9 percent to 9.1 percent in the fourth quarter. It did not expect it to drop to an 8.5 percent to 8.7 percent range until late next year.

So far, data ranging from manufacturing to retail sales suggest the U.S. economy's growth pace could top 3 percent in the fourth quarter, a sharp step up from the second quarter's 2 percent annual rate. In contrast, much of the rest of the world is slowing and the euro zone appears to have already fallen into recession. However, there is still considerable concern that the European debt crisis and upcoming fiscal tightening at home could slow U.S. growth next year.

Although the economy resumed its expansion two years ago, about 24.4 million Americans are either out of work or underemployed and employment remains 6.3 million below its level in December 2007 when the recession started. Still, the labor market is improving. While the government's survey of employers has shown a still-tepid pace of job growth, its separate poll of households has shown a total of 1.28 million jobs created over the last four months.

If the labor force participation rate had held steady, the unemployment rate would have fallen less dramatically to 8.9 percent. The jobless rate is expected to drift higher in coming months as more people come back into the job market.

The scheduled expiration of extended long-term unemployment benefits at the end of December may have contributed to the big drop in the labor force last month. In order to qualify for benefits, recipients have to show they are actively looking for work. Analysts said some of the recipients already set to receive benefits may have told the Labor Department they were no longer searching for a job.

Still, the report was a relative bright spot for a labor market that has been the Achilles heel of the U.S. recovery. Even as prospective workers gave up the hunt for a job, the share of the working-age population that is employed rose to an eight month high.

Also supporting the improving labor market tone, a broad measure of unemployment that includes people who want to work but have stopped looking and those working only part time but who want more work dropped to a 2-1/2 year low of 15.6 percent in November from 16.2 percent in October.