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The Globe and Mail

Cautious optimism greets drop in U.S. jobless rate

The beleaguered U.S. economy is suddenly a ray of light in the global malaise caused by the European debt crisis.

A monthly employment survey by the government found that a net 278,000 Americans found jobs in November, dropping the unemployment rate to 8.6 per cent – the lowest since March of 2009 – from 9 per cent the previous month.

The Labour Department's latest jobless data represent a clear break from a summer of lacklustre data that left many economists worried that the United States risked tipping into another recession.

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A separate survey of businesses and governments showed non-farm payrolls expanded by 120,000 in November, bringing job gains over the past four months to 534,000. That suggests a level of jobs growth barely fast enough to keep up with additions to the labour force from immigration and graduation.

But while analysts typically prefer the payrolls figure because it is based on actual paycheques, rather than the response of someone at the other end of a telephone, several said Friday that the household survey is better at capturing turning points in the economic cycle because it captures hiring by smaller employers.

"The big picture shows an economy that has picked up steam in the second half of the year," Nigel Gault, chief U.S. economist at IHS Global Insight, said in a report.

"It still faces domestic headwinds," Mr. Gault added, citing the heavy debt burdens of U.S. households and their governments. "But the major threat remains external from slowing growth in the rest of the world and from the euro zone's financial crisis."

U.S. stocks had their best week since March, 2009. The surge had a lot to do with the pledge by the Federal Reserve and five other central banks to ensure banks have access to funds, relieving pressure on the European financial system.

But traders' sentiment also was buoyed by fresh evidence this week that consumer confidence improved last month as automobile sales jumped almost 3 per cent to an annual rate of 13.6 million. Manufacturing output also increased in November and pending home sales surged more than 10 per cent in October.

"The U.S. economy is, for now at least, shrugging off the global economic downturn and fears about the collapse of the euro zone," said Paul Ashworth, chief U.S. economist at Capital Economics.

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To be sure, the enthusiasm about the U.S. economy is measured, based more in relief that the worst-case scenarios of earlier this year have been avoided than in confidence about the country's economic outlook. The Standard & Poor's 500 index had gained 1.3 per cent at one point Friday, but ended little changed from Thursday's close.

Half the decline in the unemployment rate in November was the result of 315,000 people leaving the labour force because they couldn't find work. The average duration of unemployment rose to a record 40.9 weeks.

The percentage of industries adding jobs declined to 55 per cent from 60 per cent, a worry because a strong rebound in hiring will require broad participation to make up for the dormant construction sector. Average hourly earnings remained stagnant, which suggests limited consumer demand.

Craig Herkert, chief executive officer of SuperValu Inc., a discount grocer, says the company's customers are struggling. At the end of each month, Mr. Herkert said his clients are buying in smaller volumes, suggesting they are stretching whatever regular income they have to the max. "We continue to see a very stressed consumer out there," he said in an interview with Bloomberg News from Washington.

Few expect economic growth in the U.S. to pick up fast enough to relieve that strain any time soon. Economists at Bank of Nova Scotia predict the U.S. economy will expand a mere 1.8 per cent in 2012, about half the pace needed to get the unemployment rate back to below 6 per cent.

The reason for the pessimism is debt. Households continue to work off the excesses of the credit boom, which is holding back a revival of the housing market. Governments shed 20,000 jobs in November as state and local authorities continued to implement austerity measures. The federal government in Washington has delayed its own budget measures amid political squabbling over taxing the wealthy and the need for short-term stimulus.

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President Barack Obama welcomed the decline in the unemployment rate, but avoided declaring victory. He used a public event in Washington to push for an extension of a temporary payroll tax cut and more generous unemployment benefits.

"Failure to take either of these steps would be another blow to our economy," Mr. Obama said.

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