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Job market boost raises economic hopes

January 10, 2012

| MoneyRates.com Senior Financial Analyst, CFA

On January 6, the Bureau of Labor Statistics (BLS) released its report on employment in December, which indicated that the U.S. economy added a net total of 200,000 jobs during the month. This was good news, and not just for people who are looking for a job.

Here are six reasons why this employment report was so significant:

  1. December's job growth was very solid. The net job growth figure of 200,000 was very strong in comparison to recent figures. To put it in perspective, it marked just the sixth time in the last 55 months that employment growth reached the 200,000 threshold.
  2. The trend is moving in the right direction. December's job growth was not just an isolated sign of improvement. It marked the sixth straight month in which net employment growth topped 100,000. As a result, employment was stronger in the second half of the year than the first half, and overall, 2011 was the best year for job growth since 2006.
  3. Other job measures are improving as well. Not only did December's job growth drop the unemployment rate to 8.5 percent, but other aspects of the employment picture brightened as well. There was a decline in the number of people working part-time because they couldn't find full-time jobs, and the number of discouraged workers (those who have given up looking for a job) has declined over the past year as well. To be sure, 8.5 percent is still an unacceptably high level of unemployment, but it marks a significant improvement from the peak of 10 percent reached in late 2009, and it's the lowest unemployment rate in nearly three years.
  4. Job growth is an indicator of business confidence. Since government has been shedding jobs over the past year, net employment growth is a sign that the business sector of the economy is gaining confidence. This could be the key to getting the pace of growth to pick up.
  5. Employment growth has residual effects. Besides being a significant indicator of recent conditions, employment has a bearing on future conditions as well. Stronger consumer spending, better wage growth, a healthier stock market, and higher savings account interest rates can all result from more people going back to work and businesses having the confidence to expand.
  6. January may be a key to 2012. Now comes the cautionary note: January may tell the tale of whether the momentum in the job market can be sustained. For a number of reasons, employers often delay layoff announcements until after the holiday season, and already there have been a few such announcements. The BLS does adjust its employment numbers to account for normal seasonal variances, but if January's employment number is unusually weak, it could be a sign that the economy is bogging down yet again.

Any individual statistical release is ultimately just one piece of the puzzle that makes up the economy. In this case, though, the employment report happens to have been a particularly important piece, one that made the picture both clearer and brighter.

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