The U.S. unemployment rate fell last month to its lowest level in more than two and a half years as employers stepped up hiring in response to the slowly improving economy.
The Labor Department said Friday that the unemployment rate dropped to 8.6 percent last month from 9 percent in October. The rate hasn't been that low since March 2009, during the depths of the recession.
Still, 13.3 million Americans remain unemployed. And a key reason the unemployment rate fell so much was because roughly 315,000 people had given up looking for work and were no longer counted as unemployed.
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The presidential election is less than a year away, which means President Barack Obama will almost certainly face voters with the highest unemployment rate of any president since World War II. Rival Republicans have made the nation's joblessness a key campaign issue.
Meanwhile, Europe's financial crisis threatens to slow U.S. growth next year. A recession in Europe could reduce U.S. exports, hurt global financial markets and dampen business confidence.
Employers added 120,000 jobs last month. And the previous two months were revised up to show that 72,000 more jobs added — the fourth straight month the government revised prior months higher.
Private employers added a net gain of 140,000 jobs last month. Governments, meanwhile, shed another 20,000 jobs, mostly at the local and state level. Governments at all levels have shed almost a half-million jobs in the past year.
More than half the jobs added were by retailers, restaurants and bars, a sign that holiday hiring has kicked in. Retailers added 50,000 jobs, the sector's biggest gain since April. Restaurants and bars hired 33,000 new workers. The healthcare industry added 17,000.
Paul Ashworth, an economist at Capital Economics, estimates that the economy will expand 2.5 percent in the last three months of this year. But he expects growth to slow to 1.5 percent in 2012, partly because of the crisis in Europe. And if Congress fails to extend the Social Security tax cut and long-term unemployment benefits this month, growth is likely to slow even further.
Weak job growth means companies don't have to raise pay to keep their employees. Fewer jobs and lower pay leaves consumers with less money to spend. That's holding back economic growth.
In the past three months, the economy has added an average of 143,000 net jobs per month. That's enough to keep up with population growth and better than the previous three months, when the economy averaged just 84,000.
Other recent economic reports have been positive, too.
Factory output expanded last month. Retailers reported a strong start to holiday sales over the Thanksgiving weekend, consumer confidence surged in November to the highest level since July, and Americans' pay rose in October by the most in seven months.
Car sales also rose sharply in November, normally a lackluster month for the auto industry. Chrysler, Ford, Nissan and Hyundai all reported double-digit gains on Thursday, compared to a year ago.
"Now is not the time to slam the brakes on the recovery, right now it's time to step on the gas," Obama said. He encouraged Congress to extend a tax cut that applies to 160 million Americans but is set to expire at year's end.
The government uses a survey of mostly large companies and government agencies to determine how many jobs were added or lost each month. It uses a separate survey of households to determine the unemployment rate.
The household survey picks up hiring by companies of all sizes, including small businesses and companies just getting off the ground. It also includes farm workers and the self-employed, who aren't included in the survey of companies.
The household survey has shown an average of 321,000 jobs created per month since July, compared with an average of 13,000 the first seven months of the year.
When the economy is improving or slipping into recession, many economists say, the household survey does the better job of picking up the shift because it is more likely to detect small business hiring.
"We might finally be seeing new business creation expand again, which is critical to the sustainability of the recovery," said Diane Swonk, chief economist at Mesirow Financial, a financial services company.
The National Federation of Independent Business, a small business group, said Friday that its own survey of small companies shows that more of them are planning to add workers than at any time since September 2008, when the financial crisis struck.
Small businesses, defined as those with 500 or fewer workers, employ about half of all workers in the private sector. They have generated about two of every three new jobs in the economy since the mid-1990s.
The so-called underemployment rate, which counts people who have given up looking and people who are working part-time but want full-time jobs, did fall — to 15.6 percent from 16.2 percent.
But even with the recent gains, the economy isn't close to replacing the jobs lost in the recession. Employers began shedding workers in February 2008 and cut nearly 8.7 million jobs for the next 25 months. The economy has regained about 2.5 million.
And most people aren't getting raises. Average hourly pay slipped 2 cents last month to $23.18. In the past year, wages have risen 1.8 percent, but inflation has risen twice as fast, eroding buying power.
Obama could still face voters next fall with the highest unemployment of any sitting president seeking re-election since World War II. Gerald Ford faced a 7.8 percent jobless rate when he ran and lost in 1976.
Getting unemployment down to that level would take stronger and consistent job growth. It takes about 125,000 new jobs a month just to keep up with population growth.
Ronald Reagan faced 7.2 percent unemployment in 1984 and trounced Walter Mondale. Unemployment was 7.8 percent when Obama took office in January 2009.
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