Even with massive tax, spending, and regulatory threats facing the economy, our mostly free-market private sector is generating economic recovery. Led by a profitable and productive business sector, today’s jobs report for November registered only an 11,000 decline in nonfarm payrolls, the smallest loss in two years. The unemployment rate dropped to 10 percent from 10.2 percent, the first two-tenths decline in that measure since September 2006 (when it fell to 4.5 percent from 4.7 percent).
Noteworthy is an upward revision of 159,000 jobs for September and October, meaning that the losses were that much less. Bolstering this good news, the small-business household survey rose by 227,000 while the ranks of the unemployed fell by 325,000.
This good news follows yesterday’s jobless claims report, which showed another drop to nearly 450,000 from about 650,000 last winter. Following revisions, it’s quite possible that the November payroll report might show a positive number of jobs gained.
I think that because businesses have become much healthier, the layoffs are about over. There may even be a labor shortage. Temporary workers increased by 52,000, the largest gain in five years and the fourth-consecutive monthly gain. Just as important, the work week expanded significantly, as did hours worked.
So the next step before long will be new job hiring as part of the overall economic rebound.
Interestingly, gold prices dropped $50 on the employment news while the exchange rate of the dollar increased significantly, both on expectations that the Fed may restrain its balance sheet and raise its target rate sooner than people think. That’s the big market debate right now. Although Bernanke is targeting the unemployment rate — which is still very high at 10 percent — it’s clear that the economy is trending higher and that inflation-sensitive market-price indicators are telling the Fed to tighten money.
Right now, I think the Fed’s target rate should be somewhere between 50 basis points and a full percentage point, rather than zero. And the Fed should quit buying all the mortgages that have created $400 billion in excess dollars since June, thereby fueling the massive gold rally until today’s correction.
This economy looks self-sustaining. It’s not going to be an 8 percent recovery, as it should be after the very deep recession. But it may be turn out to be stronger than the pessimists expect.