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A Welcome Surprise on the Jobs Front

More job seekers in the months ahead will push the unemployment rate higher, not lower.

The good news on employment unfortunately won’t last. The remarkably small number of net jobs lost in November -- a mere 11,000 compared to 111,000 the month before -- is undoubtedly a major positive, indicating that layoffs are either over or nearly so. But there’s still plenty of slack in production capacity, and the pickup in hiring will likely be very modest in the months ahead.

The unemployment rate is sure to climb as well. Although it dropped to 10% in Nov. from 10.2% in Oct., the rate will tick higher once again as workers who have been discouraged and stopped looking for jobs flock back to the labor market, trying to get hired. Lawrence Mishel, president of the labor-backed Economic Policy Institute, expects the rate to trend up for another 12 months.

Hiring signals are, in fact, far from strong. Earlier this week, purchasing managers in manufacturing said that they anticipate less hiring in the near term, while managers in services haven’t changed their minimal hiring plans. What’s more, hours have been pared for many who are still employed. Although the average workweek increased from 33 hours to 33.2, it remains well below the 33.8 figure of Dec. 2007, when the recession began.

Moreover, as Federal Reserve Chairman Ben Bernanke recently told the Senate Banking Committee, “You need growth of 2.5% just to absorb new entrants into the labor force.” With GDP growing at a rate of 2.8% in the third quarter and likely to stay around that level for another quarter or two, the unemployment rate won’t retreat quickly.


Some sectors in particular continue to struggle. Manufacturing shed 41,000 jobs in Nov., an improvement over the 51,000 lost the previous month but still a large amount. And construction lost 27,000. Layoffs in these two sectors will be among the last to end, petering out in the spring, with companies finally starting to rehire late in 2010.

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