Strong Jobs Data Fuels Optimism for Economy, But Risks Remain

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The U.S. economy showed increased signs of life Thursday as new data indicated that companies are hiring more workers and fewer people are filing for unemployment benefits. The positive signals are more evidence that the economy is continuing its slow but steady comeback from the worst recession in decades. Private-sector employers added 325,000 new jobs in December, according to ADP’s National Employment Report, handily beating analyst expectations of 178,000 and November’s figure of 204,000 new jobs.

“December’s advance was the largest monthly gain since December 2010, reflecting strong job creation across most industries,” said Carlos Rodriguez, president and chief executive officer of ADP. “Small and medium-sized businesses were hiring at a similar pace. Job creation among large employers was also encouraging.”

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The strong data in the ADP report surprised some economists, including Wayne Kaufman, chief market analyst at John Thomas Financial, who called the job gains figure “stunning,” according to Reuters. “This is another data point that shows our economy is healing,” Kaufman said. “It fits in well with improvements we’ve seen in consumer sentiment, and obviously that’s because there are more people getting paychecks, which is making everyone happier.”

Initial jobless claims, meanwhile, fell to 372,000, a decrease of 15,000 from the previous week, according to the Labor Department. The four-week moving average of new claims fell to 373,250, the lowest level in three years. The better than expected employment numbers fueled optimism heading into Friday’s more comprehensive December jobs report, which had been expected to show the unemployment rate ticking up one-tenth of a percent to 8.7%. Economists expect the number to rise as workers return to the labor market and are once again counted among the officially unemployed.

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Despite the encouraging hiring numbers, some economists cautioned that the ADP figures could be affected by seasonal factors — many employers keep workers on their books until December, even if they were let go earlier in the year — and noted that they are subject to revision. (Last year’s December report was way off, as several observers pointed out Thursday.)

Also, the broader economic picture remains cloudy despite Thursday’s glimmers of hope. The unemployment rate is expected to remain above 8% through the end of 2012, nearly twice what’s considered healthy. And many analysts predict that the U.S. economy will grow at a relatively meager 2% to 3%, which suggests a fairly modest recovery. At that level, the U.S. remains vulnerable to possible economic shocks caused by the ongoing European debt crisis. Most economists would like to see growth of 4% to 5% to generate the kind of activity needed to return the economy to pre-recession levels.