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The employment situation fails to improve

According to the December employment numbers, the employment situation failed to improve as I had hoped, and as had been suggested by the decline in unemployment claims and the surge in the ADP estimate of new private sector jobs. But while it failed to improve, neither did it deteriorate. Both the establishment and the household surveys report that the U.S. economy has been creating about 120,000 new private sector jobs a month, on average, over the past year, and the rate of growth has been fairly steady throughout the year.

Although this is about the rate of new job creation needed just to keep up with the 1% per year average growth in the labor force, the unemployment rate has declined because the labor force has shrunk (at least two million people have apparently stopped looking for jobs, so they are no longer considered to be part of the labor force). So while it's good that more people are working, we are far from a situation that might be called healthy or normal. In any event, it was probably premature to expect a pickup in job growth in December; the new and improved outlook for fiscal policy (e.g., the extension of the Bush tax cuts) didn't become a reality until after the elections, and few businesses are going to be reacting immediately—it takes time to make new plans and hire new people. Jobs, after all, are a lagging indicator of conditions in the economy. So if jobs growth doesn't pick up in the next several months, then it will be time to worry that something is amiss.

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