WASHINGTON — Small businesses that were skittish about the economy this summer started hiring in bigger numbers this fall, helping drive the unemployment rate down to 8.6 percent in November, the lowest in two and a half years.
The country added 120,000 jobs in November, the Labor Department said Friday. The economy has generated 100,000 or more jobs five months in a row — the first time that has happened since April 2006, well before the Great Recession.
“Something good is stirring in the U.S. economy,” Ian Shepherdson, an economist at High Frequency Economics, said in a note to clients.
The stock market opened higher after the unemployment report came out. The Dow Jones industrial average climbed 48 points, good for a weekly gain of 836 points. The only bigger point gain in one week was in October 2008.
The report, one of the most closely watched economic indicators, showed that September and October were stronger months than first estimated. For four months in a row, the government has revised job growth figures higher for previous months.
Unemployment was 9 percent in October and has been stuck near or above that level for two and a half years. The last time unemployment was this low was March 2009, two months after President Barack Obama took office.
“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.
Small businesses adding more workers
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.
LogicBoost, a Washington, D.C., software consulting firm with 19 employees, has hired a sales worker and a marketing worker in the past three months and planned to post an opening for a software engineer Friday.
“Business is going gangbusters,” CEO Jonathan Cogley said. “It would be great if the economy were stronger. I think we’d be growing even faster.”
Outside Detroit, Grace Dersa opened the Frank Street Bakery this week with her husband. They took the $60,000 gamble after seeing signs that the local economy is improving. They, too, plan to add a worker soon.
“When we go to a restaurant here, there’s a 30-minute to two-hour wait. Homes are selling in this area,” Dersa said. “People are spending.”
Indeed, Americans dropped a record $52.4 billion over the Thanksgiving weekend, according to the National Retail Federation, a trade group. A separate report from MasterCard found spending was up almost 9 percent from last year.
The unemployment report was the latest encouraging indicator for the economy. Other reports this week have shown that factories are producing more, construction is growing, and people are buying more cars.
Possible solution in Europe
The accelerating debt crisis in Europe has loomed over the economy for months. An economic collapse there would hammer sales of American exports. And if the crisis causes banks to stop lending money, the world economy would suffer.
But there are signs that Europe is moving toward a solution. Earlier this week, six central banks around the world made it easier for commercial banks overseas to borrow American dollars to do business. The coordinated action calmed financial markets and bought time for politicians to work something out.
The leaders of Germany and France appear to be pushing for stronger rules to make sure European governments are responsible with their budgets, an approach designed to save the euro currency from collapse.
European leaders meet next Friday for a crucial summit on the matter.
In the United States, about 13.3 million people are counted as unemployed. Private employers added 140,000 jobs in November, while governments shed 20,000. Governments at all level have cut almost a half-million jobs this year.
More than half the jobs added last month were by retailers, restaurants and bars. Professional and business services also rose. Those tend to be higher-paying jobs — engineers, accountants and high-tech workers.
Still, more than 300,000 people stopped their job searches last month, so they were no longer officially counted as unemployed. That accounts for some of the drop in the unemployment rate.
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.
Social Security tax cut at risk
It had appeared that Obama would face voters next fall with the highest unemployment of any sitting president seeking re-election since World War II. That was the 7.8 percent faced by Gerald Ford 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.
The economy grew at a 2 percent annual rate in July, August and September. Paul Ashworth, an economist at Capital Economics, estimates growth will speed up to 2.5 percent in the last three months of the year, but slow to 1.5 percent in 2012.
One factor that will figure in is whether Congress extends the Social Security tax cut, which is set to expire Dec. 31. It will give most American households $1,000 to $2,000 this year.
Both Democrats and Republicans have expressed interest in extending the tax cut — Obama wants to expand it — but they have disagreed over how to pay for it. The Senate on Thursday defeated plans from both parties on how to do it.
Republicans had proposed paying for the cut by freezing the pay of federal workers through 2015. Obama has already recommended freezing it through 2013. Democrats wanted to raise taxes on people making $1 million or more a year.