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Economic Forecasts

Look Past Disappointing Jobs Report

But continued slow hiring will give Ben Bernanke more ammo for keeping credit loose.

Don’t be misled by the weak job growth reported for November -- just 39,000. Seasonal calculations involving retail store hiring likely underestimated the gains and signal an upward revision next month. In addition, a panoply of other data show an economy that is growing, at least modestly. They include rising car sales, a bump in overall retail spending and a decline in the filing of first time claims for unemployment benefits over the past four weeks. Moreover, the outlook among purchasing managers in manufacturing and services remains favorable.

But progress will continue to be slow. With GDP growing at less than 3% (annualized rate) for the next year or so, millions will remain out of a job for months or even years. It’ll be 2012 before the unemployment rate sinks below the 9% mark. In November, it ticked upward to 9.8% from 9.6% in October.

About 8.5 million jobs were lost in 2008 and 2009. Since recovery began in June 2009, when GDP turned upward, only about 1 million have been added back. Gains in employment lagged -- in fact, the economy lost an additional 1 million jobs in the first six months of the recovery. Moreover, economic growth, at 2.5% in the third quarter, is barely enough to meet job growth from newcomers to the labor force. We expect about 1 million jobs to be added this year and about 1.5 million in 2011. Although productivity gains continue, the pace of increase is slower, so employers will find it harder to delay hiring workers as the economy grows and orders increase.

Hiring indeed has stepped up since October, whose increase of 172,000 jobs (revised up from 151,000) had raised expectations for a better November. Two straight months of solid increases would have been a signal that the labor force had turned a corner. Sectors showing job gains include health care, temps, leisure and hospitality. But manufacturing, construction and retail also showed losses for the month. All told, private sector hiring in services did show a gain of 65,000, but that category had been adding more than 100,000 jobs in each of the past two months.

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The report will confirm the views and actions of Federal Reserve Chairman Ben Bernanke, who is leading policy in the direction of more credit easing out of concern that the primary threat right now is economic growth slowing rather than inflation spurting. Bernanke’s critics, citing concerns about the threat of inflation, have been urging the Fed to back off.