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Economy gets 'horsepower' from jobs report

Figures indicate that a "virtuous cycle" may have replaced the "vicious cycle" in the United States.

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Associated Press
Published:
  • People wait to talk with potential employers at a job fair sponsored by National Career Fairs in New York on Dec. 12.

    Mark Lennihan / Associated Press

    People wait to talk with potential employers at a job fair sponsored by National Career Fairs in New York on Dec. 12.

WASHINGTON -- Four painful years after the Great Recession struck and wiped out 8.7 million jobs, the United States may finally be in an elusive pattern known as the virtuous cycle -- an escalating loop of robust job growth, healthier spending and higher demand.
The nation added 200,000 jobs in December in a burst of hiring that drove the unemployment rate down two ticks to 8.5 percent, its lowest in almost three years, and led economists to conclude that the improvement in the job market might just last.
"There is more horsepower to this economy than most believe," said Sung Won Sohn, an economics professor at California State University. "The stars are aligned right for a meaningful ... recovery."
6 months of growth
It was the sixth month in a row that the economy added at least 100,000 jobs, the longest streak since 2006. The economy added jobs every month last year, the first time that has happened since 2005.
And the unemployment rate, which peaked at 10.1 percent in October 2009 and stood at 9.1 percent at the start of last year, has fallen four months straight.
If economics textbooks and the best hopes of millions of unemployed Americans are confirmed, the virtuous cycle may be under way, which would suggest the job market will get stronger yet.
When more Americans are hired, they have more money to spend. When more money courses through the economy, businesses can justify hiring more people. That means more jobs, more spending and more demand for businesses. Which leads to still more hiring, spending and demand.
That would be the reverse of the vicious cycle that took hold during the Great Recession. People lost jobs and spent less money, so businesses rang up less sales and were forced to lay off more people. That led to even less spending and more layoffs.
"The labor market is healing," said Diane Swonk, chief economist at Mesirow Financial. She cautioned that "we still have a long way to go -- years -- to recoup the losses we have endured."
Indeed, the economy added 1.6 million jobs for all of 2011. That is better than the 940,000 it added during 2010. In 2009, the most bruising year of the Great Recession, the nation lost more than 5 million.
But it will take 6 million more jobs to get the United States back to what it had in December 2007, when the recession began. Economists forecast the nation will add almost 2 million this year.
Election implications
The unemployment report was the first to be released since Republicans across the country began voting to determine a candidate to face President Barack Obama this fall in an election that will turn on the economy.
Obama appears bound to face voters with the highest unemployment rate of any president running for re-election since World War II. Unemployment was 7.8 percent when Obama took office.
But the president's re-election chances may hinge more on the direction of the unemployment rate than on what the rate is come Election Day.
The report painted a picture of a broadly improving job market. Average hourly pay rose by 4 cents. The average workweek lengthened by six minutes, a sign that business is picking up and companies may soon need to hire. The private sector added 212,000 jobs in December. That gain was offset by 12,000 layoffs by governments.
Hiring increased across industries. Manufacturing added 23,000 jobs, as did the health care industry. Transportation and warehousing added 50,000 jobs. Retailers added 28,000. Even the beleaguered construction industry added 17,000.
In manufacturing, the 225,000 jobs added for the year are the most since 1997, and are particularly good signs for the economy. Factory jobs tend to pay well, and plant expansions signal that businesses are gaining confidence about the future.
Story tags » RetailUnemploymentEmploymentUnemploymentEmployers

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