Economy makes steady gains despite sluggish job creation

Associated Press

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.

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 still is 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.

In the view of most economists, the direction of the overall economy remains positive — even if its pace feels agonizingly slow.

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.

Family finances have improved. Personal income surged 0.5 percent in October. That put cash in shoppers’ wallets for the holiday shopping season.

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.