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Great News in the Jobs Numbers



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This is the best employment report since the start of the recovery. The labor market still has a long way to go before it gets back to normal, but the pace of improvement has clearly accelerated.

Private payrolls increased 212,000 in December (209,000 including revisions to prior months), and every major category of private payrolls saw increases. Perhaps even more important was an increase in the average work week to 34.4 hours, from 34.3. That might not seem like a lot, but it translates into 320,000 jobs. Had private employers kept the work week unchanged in December, they would have had enough labor demand to increase jobs by about 530,000. This is an important signal of more job gains to come.

In 2011, non-farm payrolls were up an average of 137,000 per month. We anticipate an increase around 180,000 for 2012. Some pessimists say a “birth/death” model is artificially inflating payroll gains, but December’s birth/death adjustment was –11,000, the first negative adjustment for any December in the last nine years.

The other big headline for today is that the unemployment rate ticked down to 8.5 percent in December, the lowest since March 2009 and almost a full percentage point lower than a year ago. The December drop was due to a solid 176,000 increase in civilian employment.

Although the November jobless rate was revised to 8.7 percent from 8.6 percent, that change is deceiving. Unrounded, November’s jobless-rate revision was to 8.65 percent from 8.64 percent, no significant change.

The bottom line is that hours worked in the private sector are up 2.4 percent in the past year, while average hourly earnings are up 2.1 percent. This translates into a 4.5 percent gain in cash earnings (excluding fringe benefits, like health insurance). We all wish that were even faster, but it is outpacing inflation. This, combined with a justifiable slowdown in the pace of debt reduction, is making it easier for consumers to spend. Those banking on a weak economy in 2012 ought to re-check their assumptions.



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