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Popular Economics Weekly

The November unemployment rate fell to 10 percent from 10.2 percent. This is the first decline in almost 2 years and means the employment situation is improving. It is one reason consumers are returning to the shopping malls this holiday season.

Nonfarm payrolls dropped by a seasonally adjusted 11,000 in November, the fewest jobs lost since December 2007. Payroll losses in September and October were also revised lower by a total of 159,000, though it was the 23rd straight month of payroll losses, amounting to 7.16 million.

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This has brought out shoppers. Retail sales have risen for 3 consecutive months with November sales up just 0.3 percent, but BusinessWeek reports that consumer outlays from May through October grew at a 2.6 percent annual rate. The good news is this may continue. BusinessWeek’s Jim Cooper estimates that consumers may have regained one-third of the $14 trillion in net worth lost since the third quarter of 2007, due largely to the huge stock rally and a 4.3 percent savings rate in Q3.

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"Most indicators suggest that financial markets are stabilizing and that the economy is emerging from the recession," Federal Reserve Chairman Ben Bernanke told Congress this week. "Yet our task is far from complete. Far too many Americans are without jobs, and unemployment could remain high for some time even if, as we anticipate, moderate economic growth continues."

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Another indicator of a unemployment bottom is the declining rate of job losses relative to peak employment. Note that the two most jobless recoveries since WWII were 1991 and 2001 , respectively, when there were in essence no government-sponsored job creation programs. We also see that unemployment has reached a tentative bottom during this recession, and the recovery will probably look like a flattened ‘U’.

The continued job cuts amid slowly growing demand means employers must squeeze more out of the workers they have. The government has said productivity surged in the third quarter by the largest amount in six years, while labor costs fell.

Productivity change in the nonfarm business sector, 1947-2008

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The Labor Department revised its estimate of growth in output per hour of work to an annual rate of 8.1 percent in July-September period, the biggest jump since 2003, from an initial estimate of 9.5 percent. Unit labor costs fell at a 2.5 percent rate, less than the 5.2 percent plunge first reported.

That indicates inflation is remaining under control, since wages comprise two-thirds of product costs. But it also signals a distinctly deflationary trend that raises doubts about the durability of an economic recovery. The Commerce Department reported last week that over the 12 months ending in October, wages and salaries, the most important component of incomes, fell 2.9 percent.  This has to begin to rise again, but not until we have returned to a lower (and more normal) jobless rate.

Harlan Green © 2009