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Job Gains Bolster Economy’s Resilience to U.S. Fiscal Tightening

Better-than-forecast employment gains in November indicate the U.S. economy is on better footing to face the fiscal tightening that may take effect next year.

The 146,000 increase in payrolls reported yesterday by the Labor Department in Washington exceeded all estimates in a Bloomberg survey of economists, who had projected superstorm Sandy would depress the reading. The jobless rate unexpectedly fell to 7.7 percent, the lowest level since December 2008, from 7.9 percent in the prior month.

“The economy has been showing solid momentum,” said Dean Maki, chief U.S. economist in New York for Barclays Plc. “We’re seeing moderate job growth that’s strong enough to push the unemployment rate lower. This puts us in a better position going into the fiscal cliff than if things had been deteriorating.”

The improvement in the labor market is the latest piece of “encouraging” data, including a housing rebound, rising auto sales and healthier consumer finances, according to Maki, No. 2 among U.S. economic forecasters ranked by Bloomberg. The country may need the extra cushion as lawmakers negotiate to avert more than $600 billion in automatic tax increases and spending cuts next year that the Congressional Budget Office has said will trigger a recession.

The job market last month withstood the damage from Sandy, the worst Atlantic storm to ever hit the U.S., yesterday’s report showed. The median forecast of 91 economists surveyed by Bloomberg called for a payroll gain of 85,000. Projections ranged from 15,000 to 145,000.

Projected Impact

Analysts at Nomura Securities International Inc. in New York projected Sandy would reduce employment growth by 45,000, while UBS Securities LLC and Deutsche Bank Securities Inc. put the fallout at 150,000.

An early Thanksgiving may have lifted payrolls as companies took on extra staff sooner than normal. Retail employment climbed by 1 percent from September through November, the most since the three months to July 1996, the Labor Department report showed.

Macy’s Inc. (M), the second-biggest U.S. department-store chain, has said it would add about 2,000 more seasonal workers than the 78,000 it hired last year. Toys ‘R’ Us Inc., the world’s largest toy retailer, reported plans to employ 45,000 temporary staff, up 5,000 from the 2011 season.

Yesterday’s report “supports what retailers are saying, that the holiday season will be good,” said Ellen Zentner, senior U.S. economist at Nomura Securities International Inc. in New York.

Share Prices

Stocks rose yesterday on the jobs numbers, lifting the Standard & Poor’s 500 Index 0.3 percent to 1,418.07. The yield on the 10-year Treasury note climbed to 1.62 percent from 1.59 percent the day before.

A strengthening housing market also is bolstering the outlook. Valerie Epps of Atlanta, who lost a part-time retail job in November, said she is “optimistic” she can return to her prior career in real estate and insurance now that the housing market is improving in the area.

“In the past, the market wasn’t very good in real estate or insurance, and they are so tied together,” said Epps, 45. “It’s all now building back up. You can see a turnaround. I do see companies hiring, slowly.”

Rising home values driven by higher sales and record-low mortgage rates are helping to improve the finances of both households and banks, easing the flow of credit and encouraging consumers to sustain their spending.

Household net worth climbed by $1.72 trillion in the third quarter, reflecting increases in stock values and home prices, figures from the Federal Reserve showed this week.

Residential Construction

Residential construction may add to economic growth this year for the first time since 2005, boosting gross domestic product by 0.3 percentage point, according to Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities Inc. in New York. He estimates the contribution may reach 1 percentage point next year when taking into account the multiplier effect of the boost to wealth and higher sales in industries like furnishings and remodeling.

“We have a sense of much more positive momentum heading into next year than we did at this time last year,” Alan Cole, president of Martinsville, Virginia-based Hooker Furniture Corp. (HOFT) said on a Dec. 5 conference call with analysts. “We’ve expanded our workforce by about 5 percent to date and anticipate another 5 percent expansion in the coming months.”

Auto Sales

Demand for automobiles also will remain a bright spot for the economy, spurring production and employment. Industrywide sales of cars and light trucks rose to 15.5 million at an annual rate in November, the best pace since February 2008, according to Ward’s Automotive Group.

Manufacturing may also be stabilizing. Orders for business equipment such as machinery and communications gear rebounded in October more than previously estimated, figures from the Commerce Department showed this week. The gain is a sign business investment will improve next year after slumping in the second half of 2012.

In the budget battles in Washington, President Barack Obama is pushing for higher tax rates for the top 2 percent of earners, a proposal Republicans reject while pressing for deeper cuts in entitlement programs. Failure to come to an agreement would trigger automatic federal tax increases and spending cuts next year.

The improving economy “doesn’t shield us from the fiscal cliff, which could still push the U.S. into a recession if it’s allowed to persist all of 2013,” Barclays’ Maki said. Even so, it helps that the U.S. “is doing better.”

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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