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US jobless rate drops to 5-year-low of 7 pct Spending picks up

WASHINGTON, Dec 6, (AFP): The US jobless rate fell to 7 percent in November, a five-year low, data showed Friday, raising the odds that the Federal Reserve could soon cut its huge stimulus program. The sharp drop in the rate, from 7.3 percent in October, was unexpected, and came as the economy generated a solid 203,000 jobs, a gain from a revised 200,000 in October and 175,000 in September. The job growth spread over the manufacturing, retail trade, health and professional service sectors, and suggested that US industry continues to gain confidence despite the continuing battles over the budget and spending cuts in Washington, that many economists have feared would slow hiring. Analysts said the strength of the Labor Department report could give the Fed more reason to begin cutting back its $85 billion a month bond-buying program, aimed at boosting economic growth.

Fed Chairman Ben Bernanke said early this year that the Fed could very well end the stimulus when the jobless rate falls to 7 percent, though he has stressed that such numbers are only indicative thresholds for policy. But with the pace of fourth-quarter growth still expected to be sluggish overall, many analysts said that a decision on tapering the program would likely not be taken at the coming meeting of the Federal Open Market Committee, on Dec 17-18. Instead, they predict the central bank’s policy makers would hold off to see whether the data is sustained over another month, especially because some other indicators, especially on inflation, have been unexpectedly weak. The data showed the number of unemployed Americans fell by 365,000 to 10.9 million, and total employment numbers surged. But these gains were mostly due to the return to the rolls of full-time work by hundreds of thousands of government workers laid off temporarily in the first half of October due to Washington budget politics, which saw many of them recorded as out of work, according to the Labor Department.

That correction to October’s distortions also pushed the labor force participation rate back up to 63.0 percent, though that is still very low compared to levels before the 2008 economic crisis. US consumer spending picked up pace in October, despite a dip in income, the Commerce Department reported Friday.
Consumer spending rose 0.3 percent in October, matching the average estimate and accelerating slightly from a 0.2 percent in increase in September. Personal income fell 0.1 percent instead of the 0.3 percent rise expected by most analysts. Incomes had climbed 0.5 percent in September and August. The October reading was the first decrease since January. The October 1-16 partial government shutdown had no impact on government wages and salaries because Congress authorized back pay for federal workers furloughed during the shutdown, the department said. But it said it could not separately identify in the data gathered any impacts of the shutdown on private wages or on consumer spending.

The uptick in consumer spending, which accounts for about two-thirds of US economic activity, came as Americans cut back on saving at the start of the fourth quarter. The rate of savings to disposable personal income dropped to 4.8 percent from 5.2 percent in September.
Inflation eased in October. The price index for personal consumption expenditures was essentially flat, falling less than 0.1 percent after a slight 0.1 percent increase in September.
The core PCE price, excluding food and energy, rose 0.1 percent, the same increase as in the prior month.
The key annual rate of the PCE price index, the Federal Reserve’s preferred inflation gauge, slowed for the third consecutive month as energy prices continued to fall.
The yearly rate in October was 0.7 percent, down from 0.9 percent the prior month and well below the Fed’s 2.0 percent inflation target.
The data came ahead of the Fed’s Dec 17-18 monetary policy meeting as the central bank weighs whether to cut back $85 billion a month in asset purchases aimed at holding down long-term interest rates and bolster growth.
The report coincided with an upbeat jobs report from the Labor Department, showing the jobless rate fell sharply to 7 percent in November, a five-year low, and the economy added a solid 203,000 jobs.

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