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Unemployment Dips to 8.5%, but How Is Overall U.S. Recovery Going?

A surge in December hiring pushed the nation's unemployment rate to 8.5 percent, the lowest it's been in three years. Jeffrey Brown discusses the meaning of the most recent jobs report with Mesirow Financial's Diane Swonk and Mark Vitner of Wells Fargo.

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    The U.S. economy added more than 200,000 jobs last month, beating expectations and raising hopes that a stronger recovery might be under way.

    Spurred by a surge in hiring in December, the nation ended 2011 with a jobs report that had the best numbers seen in some time, among them, the unemployment rate down to 8.5 percent, the lowest in nearly three years, and falling for the fourth consecutive month.

    The economy has now added 100,000 jobs or more for each of the last six months. That hasn't happened since April 2006. And the drop in the jobless rate came from new hires, not discouraged workers giving up the job hunt.

    For President Obama, it was welcome relief. He spoke today at the Consumer Financial Protection Bureau.


    After losing more than eight million jobs in the recession, obviously we have a lot more work to do. But it is important for the American people to recognize that we've now added 3.2 million new private sector jobs over the last 22 months — nearly two million jobs last year alone.


    Republican House Speaker John Boehner released a statement calling it good news, but, he noted, "Today marks the 35th consecutive month of unemployment above 8 percent, and too many Americans continue to struggle to find their next job."

    The president also today called on Congress to extend the payroll tax cut for the rest of 2012 to help the recovery maintain momentum by bolstering spending and putting some of the 13 million Americans who remain unemployed back to work.

    And some parsing of the numbers now from Diane Swonk, senior managing director and chief economist for Mesirow Financial, a diversified financial services firm based in Chicago, and Mark Vitner, managing director and senior economist with Wells Fargo, where he tracks U.S. and regional economic trends.

    Diane Swonk, let's start with — focus on the positive signs in today's report. This was better than expected. Where was the hiring coming from?

  • DIANE SWONK, Mesirow Financial Holdings, Inc.:

    Well, we saw broad gains in a lot of different places. Some of the biggest gains were in things like transportation.

    It wasn't just those free shipping that we saw out there. We actually saw a lot of couriers and messengers being used by corporate America that were loosening their coffers on those — all that cash they have on their balance sheets.

    We also saw a lot of hiring in the food and hotel industry, the entertainment industry — again, corporations returning to all of that kind of holiday spending they once did, entertaining their clients and their workers. So those people who are working got a few more holiday parties this holiday season.


    And so, Mark Vitner, what else did you see that was positive? What about the quality of these kinds of jobs?

  • MARK VITNER, Wells Fargo:

    Well, the quality of jobs has improved. And it's improved a little bit, and it needed to, because in the previous four or five months, we really saw a lot of jobs being added in low-paying industries.

    And there was still some of that in this report, but the overall number was better. And we saw broader job gains. We saw gains in manufacturing. We added 23,000 jobs there. And a lot of those jobs that were added in manufacturing were in higher-skilled industries like industrial machinery, motor vehicles, computers, and electronics, so relatively high-paying jobs.

    And that should bolster the income numbers. And that's really one of the more vulnerable points that we have in the economy right now, because we haven't had a whole lot of income growth over the last year.


    Well, does it — Diane Swonk, does it begin to look as though companies have a new attitude, a jumping in or at least dipping a foot into the water in terms of new hires?


    I think it's more of a pinkie toe in the waters of new hires.


    Pinkie toe, okay.





    We are seeing the trend in the right direction. That's the good news. We are also seeing a lot of what looks to be new business formation. That's new companies starting out there. And that really was the backbone of hiring in the 1990s.

    So we want to see that. And I agree with Mark. You really need to see a lot more solid wage gains. One month does not a trend make. And this has been a real turnaround in this particular month of finally seeing the composition of jobs a little better and a little stronger for wages out there, because we had been seeing in previous months when we were seeing the job gains not very high-quality jobs, and a lot of people anecdotally reporting they were trading down.

    In order to get a job, they were accepting a job at a lower pay just to be able to make ends meet.


    Well, you do, Mark Vitner, have now — over a series of months, you see regular gains now. So, of course, the key question is are we at some kind of turning point or potentially there?


    I'm not so sure that I would call it a turning point.

    There are a lot of things at play here. One of them has to do with the seasonal adjustment process, which has probably biased the numbers in the better direction, both the employment numbers and the unemployment rate to the downside. And I don't think it's a coincidence that the unemployment rate has fallen in each of the last four months.

    Those happened to be the worst four months for the economy following the onset of the financial crisis. And that's really biased the seasonals down. And I think that what we are likely to see is a little bit of carryover into 2012, but a little bit of a payback in the spring. And we may see the unemployment rate rise a bit.

    Another thing that may happen is, as more and more people hear that the unemployment rate has come down and the employment numbers are looking a little better, some of the folks who dropped out of the labor force may come back in. And that may actually push the unemployment rate back up a bit.

    So we're not out of the woods and we may see another bump in the road, but this is clearly a step in the right direction.


    Well, expand on that, Diane Swonk, in terms of the people who are out looking now.

    I was wondering how the psychology works. Does confidence begin to build in for companies and workers themselves, or does, as Mark just said, it can also raise the unemployment rate at the same time, right?


    Well, actually that's what we would see first, is you tend to see more people come into the working force and come back and try to look for jobs and the unemployment rate rise, which is actually not a bad thing if it's because they have got hope that they can actually get a job and then they eventually do get it. You want it to rise and then fall again.

    And I agree with Mark on that. We are still looking at a very uneven recovery. And I do think there is going to be some payback. Some of the gains we saw are somewhat suspect. I agree with Mark on that. Construction gains, it was 60 degrees here today in Chicago, almost 60, and it's just — it's not usual for January. It's been usually warm in large parts of the country. And that helps some of those construction numbers that we saw positive off of a very low base.

    We know construction is clearly not a boom industry right now. So this is still a very uneven recovery. And really, until housing comes back, you're not going to see a more robust recovery in the U.S. economy. And, as Mark said, there is going to be some payback.

    We got a lot of headwinds out there that we still have to deal with, political uncertainty in Europe, a recession in Europe, also our own U.S. — certainly, political gridlock is not helping the U.S. economy or confidence, for that matter.


    It is of course — Mark Vitner, we have sort of been here before in a way. Just I think a year ago things were looking up a little bit, and then they went back south again.


    Yes, and the year before that, we went through that as well. We were worried about a double dip in 2010 and also in 2011.


    Deja vu all over again, yes.


    And I don't know that we're going to be there again in 2012. But when you look at the obstacles that are out there — and Diane highlighted two of them, but there is one other one, which is Iran.

    And one of the things that really, I guess, upset the apple cart last year was that spike in gasoline prices that followed the onset of the Arab spring. And then we had the Japanese earthquake, which was not totally unforeseen. So we don't — we know there are a lot of potential stumbling blocks in front of us and who knows what else is out there.

    So, when you ask that question about, is this a turn, I think it's a step in the right direction, but I don't think it's the start of an acceleration in overall job growth. If you take into account all of the special factors in the employment data, you're left with a number somewhere around 115,000 net new jobs, which is about the same number that were added in October and November.

    And I think that's probably where we will be when we get the January numbers a month from now, maybe a tad better than that, but somewhere in that ballpark.


    Diane, can just give us a brief glass-half-full version of this, since there hasn't been a lot of good news for a long time? So today's numbers look better than before.


    The trend is in the right direction, but I agree with Mark.

    You know, we saw a bit of a catchup in the fourth quarter. There will be some giveback to that. I don't think we're in for a double-dip recession as long as Europe cannot go into a financial crisis. That is the good news, and the good news is it looks like the recovery is getting a little more resilient in the labor market. But this is far from a boom.

    And it is particularly hard for those with — that are long-term unemployed to get reemployed. We're seeing a lot of people who are quitting their jobs now and getting new jobs. That is good news. That means there are some opportunities out there that weren't there before. But it's still a little bit soon to say pop the champagne corks and, you know, the recovery is finally here.


    All right, Diane Swonk, Mark Vitner, thanks, both, very much.


    Thank you.

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