WASHINGTON — A surprisingly robust gain in new jobs last month helped drop the unemployment rate to a five-year low, fueling optimism about the nation's economic recovery and raising the prospect that the government may finally start to ease a key stimulus effort this month.
In its report Friday, the Labor Department said that the nation's employers added 203,000 non-farm jobs in November and that a large part of them were higher-paying positions. The unemployment rate fell to 7%, the lowest since November 2008.
"It's not just the quantity of the jobs but the quality," said Diane Swonk, chief economist at Mesirow Financial. "These are higher-wage jobs, and a shift from a reliance on leisure and hospitality and retail gains we had seen in recent months."
Big increases in manufacturing and construction gave experts hope that the labor market was starting to produce enough solid jobs to fuel stronger economic growth and lead the Federal Reserve to pull back on its monthly purchases of $85 billion in bonds.
The economy has averaged more than 200,000 net new jobs a month for the last four months. That's the sustained level that central bank officials have said they wanted to see before starting to reduce the monthly bond purchases, part of their effort to spur the recovery from the Great Recession.
Despite fears that the Fed's easy money policies might start ending, investors cheered the upbeat labor market news, the biggest in a series of positive economic reports recently. The Dow Jones industrial average gained 198.69 points, or 1.26%, to close at 16,020.20.
Wall Street is "waking up to the fact that good news really is good news," said Alan Whitman, managing director at Morgan Stanley Wealth Management in Pasadena. "It means the economy is able to carry itself on its own, and that's really what we want."
Construction companies added 17,000 jobs in November, up 42% from the previous month, as the housing market rebound created more demand. And the nation's factories added 27,000 workers, the most in 20 months and 69% more than in October.
Layoffs, meanwhile, have been dropping. Roy Paulson has seen business at his Paulson Manufacturing Corp. in Temecula pick up this year domestically and abroad.
"We were planning for layoffs in October, November, December because that's what we traditionally do, but we didn't have layoffs," he said.
The company, which makes safety products such as face shields for industrial use, first responders and the military, normally would be down to 110 workers at this time of year. But there are 150 workers keeping the factory operating around the clock at times to fill rush orders.
The improving economy has led Paulson to boost production despite concern about tax and spending policy in Washington.
"I'm doing what I need to do. I'm not holding back on hiring," Paulson said.
Other employers remain worried, though, about whether there will be another partial government shutdown when a short-term federal spending bill expires on Jan. 15.
"We've seen a ton of hesitancy by companies to invest in bricks and mortar because of what's going on in the political scene," said Noel Massie, United Parcel Service Inc.'s Southern California regional president. Still, UPS has hired about 600 workers this year in the region, bringing its workforce to 19,800.
Economists were encouraged that construction and manufacturing companies were increasing their hiring.
"Since the third quarter, we've seen a pickup in activity," said Chad Moutray, chief economist at the National Assn. of Manufacturers trade group. "It's pretty clear that things have started accelerating a little bit."
The surging auto industry has helped boost factory payrolls, and U.S. exports of airplanes and other manufactured goods have increased as the economies in Europe and other foreign countries started rebounding, he said.
Even so, Moutray noted, U.S. manufacturers shed 2.3 million workers during the Great Recession and have added back just 543,000.
"There's still a lot of work to be done over the coming years," he said.
Overall, the economy still needs to create about 1.3 million more jobs to make up for the 8.7 million lost during the recession.
The November jobs report provided economists with other positive signs. Employment gains were broad-based. Average hourly earnings ticked up, continuing a trend that has seen wages rise about 2% so far this year. And the workforce topped 12 million last month for the first time since April 2009.
The unemployment rate, measured by a separate survey of households, dropped much more than expected. The rate was 7.3% in October. The last time it was below 7% was November 2008, nearly a year into the recession.
Unlike past drops in the rate, this one was not driven by discouraged workers giving up their search for work. The percentage of the population in the labor force ticked up 0.2 points to 63% in November, though that is still low by historical standards.
"We need to see more reports like this," said Mark Hamrick, Washington bureau chief of Bankrate.com, a financial information website. "We've been lulled into a false spirit of optimism before."
Among the areas of concern were the long-term unemployed. About 4.1 million people in November were jobless for at least six months, essentially unchanged from the previous month.
Longtime unemployed workers need more time to find work, said Christine Owens, executive director of the National Employment Law Project.
She warned that 1.3 million people will lose their unemployment benefits just after Christmas if Congress doesn't act to extend a program providing extra benefits.
Linda Gannon of Irvine is one. Laid off from her marketing job at Kelly Blue Book in February, Gannon has sent 80 job applications and had interviews with a dozen companies but has yet to land a job.
"Everyone says it's going to get better in 2014, the companies are going to loosen up," said Gannon, who was earning $78,000 annually after 12 years in the marketing industry.
Her husband's part-time job and the $1,800 a month she gets in unemployment benefits have helped to keep the family afloat. If she loses the emergency benefits, she'll have to look for a lower-paying job in the retail sector.
"I couldn't afford to live very long here on a retail salary," she said.
Times staff writer Andrew Tangel in New York contributed to this report.