United States: Unemployment Falls for Wrong Reasons

The unemployment rate in the U.S. has fallen to its lowest level in four years. However, this drop to 7.7 percent in November, from 7.9 percent in October, is largely due to people leaving the workforce. That being said, the American economy created 146,000 new jobs last month, according to the Labor Department’s first estimates. The news remains positive, particularly in view of the marked decline in employment in Europe, and explains the initial fall of the euro against the dollar to less than 1.29 on the American markets. Economists had only predicted a net gain of around 90,000 jobs.

Besides job seeker discouragement, which causes a further drop in the labor force participation rate, the downward revision of the October and September figures is a disappointment; Contrary to previous estimates, 49,000 fewer jobs were created during the two months preceding the presidential and legislative elections.

It was feared that Hurricane Sandy would affect these employment figures. However, Labor Department officials have concluded that the catastrophe, which left 8 million individuals and businesses without electricity at the end of October and early November, “did not substantively impact” national estimates on jobs and unemployment.

As usual, almost all of the new jobs come from the private sector. The number of temporary positions continues to climb which, for some, indicates a certain reticence by businesses to commit to long-term hires due to the uncertainty surrounding the nature of the tax increases currently being discussed in Washington.

These figures seem unlikely to change Federal Reserve policy. Unless a solution is found to the difference of opinion between Republicans and Democrats on how to achieve a medium-term reduction of the budget deficit, the risk of automatic spending cuts and tax increases as of Jan. 1 means that the Federal Reserve is likely to play a waiting game.

The Federal Reserve’s monetary policy committee is meeting next week. Ben Bernanke is expected to prolong the buyback program of Treasury bonds or bonds guaranteed against mortgage-backed securities — aimed at lowering interest rates in the long term — by several months.