WASHINGTON — The economy is firing on almost every cylinder these days but the one that matters most: Job creation.
Factories are busier. Incomes are rising. Autos are selling. The holiday shopping season is shaping up as the best in four years. Stock prices are surging.
And many analysts are raising their forecasts for the economy's growth. Goldman Sachs, for instance, just revised its gloomy prediction of 2 percent growth in 2011 to 2.7 percent and forecast 3.6 percent growth for 2012.
"The upward momentum has more traction this time," after the recovery from the recession all but stalled during the spring and summer, says James O'Sullivan, chief economist at MF Global.
If only every major pillar of the economy were faring so well.
Despite weeks of brighter economic news, employers still aren't hiring freely. The economy added a net total of just 39,000 jobs in November, the government said Friday.
That's far too few even to stabilize the unemployment rate, which rose to 9.8 percent last month. Unemployment is widely expected to stay above 9 percent through next year, in part because of the still-depressed real estate industry.
Job creation ultimately drives the economy, and it remains the most significant weak link.
The meager job gains for November confounded economists. They'd expected net job growth to reach 145,000 and for the unemployment rate to stay at 9.6 percent.
Some economists dismissed the November data as a technical fluke, a result of the government's difficulty in adjusting the figures for seasonal factors. They think the job-creation numbers will be revised up later.
Others saw the jobs report as a reminder that the economy is still struggling to emerge from an epic financial crisis that choked off credit, stifled borrowing and spending and escalated the recession into the worst in 70 years. The depth of the financial crisis means the recovery will proceed more slowly than many had hoped or expected, they say.
"The fits and starts are not surprising," says Jack Kleinhenz, chief economist at the National Retail Federation. "We've had a unique recession and therefore a unique recovery."
In the view of most economists, the direction of the overall economy remains positive — even if its pace feels agonizingly slow. The latest unemployment report was a setback, but likely a temporary one, they say.
"Which are you going to believe," O'Sullivan asks, "one month of payrolls or all the other data?"
Among the encouraging signs:
__ Consumers, whose spending fuels about 70 percent of the economy, are regaining confidence. The Conference Board's index of consumer confidence rose in November to the highest level since June as consumers expressed more optimism about business conditions and jobs. Consumers are suffering "austerity fatigue," says Scott Minerd of Guggenheim Partners. They're ready to replace old clothes, old appliances, old cars.
— Family finances have improved. Personal income surged 0.5 percent in October. That put cash in shoppers' wallets for the holiday shopping season. Households cut their debts to 122 percent of disposable income in the April-June quarter, according to Haver Analytics. That was the lowest debt level since the end of 2004.
__The holiday shopping season got off to a buoyant start. The National Retail Federation expects holiday retail sales to rise 2.3 percent this year, the best performance since 2006. One reason: Stock prices have surged. A 14 percent rally in the Dow Jones industrial average since late August has made households feel wealthier, Kleinhenz says.
__ Credit is starting to flow again. Banks have eased credit standards since July, making it easier for businesses to borrow, the Federal Reserve reports. Lending to businesses rose from July through September for the first quarterly increase in two years, according to the Federal Deposit Insurance Corp.
__ Businesses are reporting solid profits and stockpiling cash. Corporate earnings rose nearly 28 percent in the third quarter from a year earlier, the government says. And companies amassed a record $1.84 trillion in cash as of June 30, according to the Federal Reserve. That was 18 percent more than a year earlier.
And even as unemployment remains at crisis levels, some encouraging signs about hiring have emerged: The private sector has added jobs for 11 straight months. That hiring has offset job cuts by financially ailing state and local governments.
Small businesses appear to be a particular bright spot. A report by the staffing firm Automatic Data Processing found that businesses with fewer than 500 employees have added 390,000 jobs this year, including 91,000 in November.
"The virtuous cycle of more jobs creating more income creating more spending creating more jobs is still turning," says Jerry Webman, chief economist for Oppenheimer Funds.
Not quite fast enough, though. Unemployment could soon rise above November's 9.8 percent rate, especially if an improving economy causes more out-of-work people to start looking for jobs.
That influx would intensify competition for job openings and raise the unemployment rate. That's because people out of work aren't counted as unemployed until they start looking for a job.
One industry where they may not find a job for a while is real estate. Since the industry bubble burst three years ago, about 2.8 million real estate-related jobs have vanished. Until those people — ranging from builders, architects and appraisers to lenders and furniture sellers — find new work, the unemployment rate isn't likely to dip much below 8 percent, economists say.
Real estate in many areas remains depressed. Home prices are being weighed down by sluggish demand, high foreclosures and a huge overhang of unsold houses. Many would-be buyers fear prices may fall further. Some also can't sell their current home to upgrade to a larger one, because they've lost equity or they can't find prospective buyers.
The economy isn't likely to get any new help from Washington. Lawmakers in a lame-duck session of Congress appear headed for an agreement on legislation that would combine an extension of tax cuts with a renewal of benefits for the long-term unemployed. But no new stimulus spending is likely.
Benefits for the long-term unemployed expired Nov. 30. Two million unemployed people will lose their benefits by year's end unless Congress acts.
Some economists also favor a one-year suspension of taxes on workers and employers for Social Security and government health care. Yet prospects for such a proposal are dim.
Even so, O'Sullivan and other economists are convinced that signs the economy is strengthening, however slowly, outweigh the discouraging jobs report the government issued Friday.
"The financial system has been recovering, with the credit crunch thawing," he says. "Businesses have already stepped up investment in equipment and software sharply and employment growth modestly . We believe the pluses will ultimately dominate."
Yet even he thinks unemployment will remain the economy's Achilles' heel: Like many economists, O'Sullivan foresees unemployment of at least 9 percent until well into next year.
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