Jobs expand steadily, but fears revive
The U.S. economy maintained a moderate pace of job growth last month despite the devastation from Superstorm Sandy, but the unexpectedly bright news was tempered by signs that consumers have joined businesses in worrying about the “fiscal cliff.”
The Labor Department said employers added 146,000 jobs in November, about twice as many as analysts had predicted and just shy of the monthly average over the last year.
The unemployment rate fell to a four-year low of 7.7% from 7.9% in October, confounding forecasts that the rate would tick back up to 8%.
Retail payrolls surged for the second straight month, healthcare kept up its solid growth and the information sector added more jobs last month than it has in years, thanks to gains in the motion picture and recording industries.
But amid that generally good news came indications that concern over the fiscal cliff -- automatic federal tax hikes and spending cuts scheduled to take effect Jan. 1 -- threatens the momentum of the recovery.
Construction payrolls, for example, fell by 20,000 last month. They have remained depressed despite a recovering housing market and increased home building.
The Associated General Contractors attributed the drop to uncertainty about what will happen at year’s end.
The trade group cited its survey in late November and early December that found 54% of construction firms had adjusted their plans because of the threat of higher taxes and lower government spending. Most of those firms said they had postponed hiring and investments.
“It is discouraging that construction employment is still struggling after more than three years of expansion in the overall economy,” said Ken Simonson, the association’s chief economist.
Moreover, a leading measure of consumer confidence plunged in December to its lowest reading in four months, with almost all the decline coming from a drop in people’s expectations for the future.
The big decline in confidence, tracked by the University of Michigan, was as surprising as the upswing in jobs.
It showed that consumers, after displaying resilient confidence in the economy, are coming more in line with the pessimistic outlook of business owners about what could happen if the government abruptly cuts its spending and raises taxes.
Consumer spending accounts for about 70% of U.S. economic activity. With home prices rising again and job growth steadily increasing, American consumers would seem primed to unleash demand built up over the last few years.
Yet real incomes, those adjusted for inflation, have remained stagnant for many people, and uncertainty about taxes for next year could prompt some to put off big purchases, just as businesses have.
Retail sales in November proved to be a disappointment. The strong Black Friday weekend didn’t make up for weaker sales earlier in the month partly from the storms that struck at the end of October, said Michael Niemira, chief economist at the International Council of Shopping Centers.
He said he still expected a “good holiday season, but slower than the growth in the last two years.”
As for the unusually strong hiring recently -- retailers added more than 50,000 jobs in each of the last two months -- Niemira said that was likely to be short-lived. Some of the retail job gains, he said, were coming from new-store openings after several years of dormancy.
The Labor Department, in issuing its November jobs report, said Superstorm Sandy did not “substantially impact” the national employment and unemployment data. But some analysts questioned that assessment.
Manufacturing employment, for example, dropped by 7,000 in November. There were unusually big losses at food-processing plants and at chemical factories -- industries that have a large presence in New Jersey and New York where Sandy knocked out power and transportation networks for days.
Even before the storms, economists pointed out that U.S. manufacturing activity had been flat since the first quarter, with factory orders for capital equipment and other so-called durable goods declining recently.
Not all economists agree that uncertainty over the fiscal standoff in Washington explains what’s happening, but Daniel Meckstroth, chief economist at the Manufacturers Alliance for Productivity and Innovation, a research group, sees little doubt.
“It’s got to be the fiscal cliff. There’s no other reason for it,” he said. “For CEOs, the prudent thing to do when uncertain is do nothing. You don’t want to be stuck with excess capacity when you get in a downturn.”
That’s exactly the position that Frank Goodnight is taking. The owner of a printing company in Salisbury, N.C., Goodnight said that he should now be looking for equipment to buy and hiring a worker or two to add to his full-time staff of 12.
“We’ve got more business here than [we’ve had ] in three years, but we’re not looking to enlarge until we get a better handle on the economy,” said Goodnight, who’s been in business for 39 years.
“It’s just the uncertainty that’s keeping me and my friends from doing anything. We’re just trying to pace and see what happens.”
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