Today the Bureau of Labor Statistics (BLS) released its November Employment Situation report, highlighting a gain of 215,000 new jobs in the payroll survey and a low unemployment rate of 5.0 percent. This good news follows on the heels of Wednesday's report of unexpectedly strong economic growth in the third quarter. The U.S. economy has been expanding at a brisk pace since the enactment of the President's 2003 tax cuts, which cut tax rates on capital, thereby stimulating business investment and job creation. Through November, 1.7 million payroll jobs have been created in 2005, and 4.5 million jobs have been created since the 2003 tax cuts went into effect. With the dividend and capital gains tax rate provisions of that package set to expire at the end of this month, Congress must act to ensure that the economy continues to expand and create jobs.
This month's numbers also mark a milestone: this is first jobs report since Hurricane Katrina hit the Gulf Coast to return to using the standard employment coverage for the affected areas.
Highlights of the November Jobs Report
The monthly survey of business establishments showed that firms added 215,000 jobs in November. BLS also revised the job growth in October and September upward by 13,000 and 25,000 jobs, respectively. With this revision to the September numbers, the economy has added jobs in every month since the 2003 tax cut.
The strongest growth came in the service sector, with 165,000 new jobs in November. Construction, which added 37,000 jobs, remained strong, and manufacturing showed an increase of 11,000 jobs. The construction industry has been steadily adding jobs since the 2003 tax cuts. Both construction and manufacturing continue to benefit from the lower capital costs and higher investment that stemmed in part from the lower taxes on dividends and capital gains, key features of the 2003 tax cuts.
The unemployment rate for November was 5.0 percent, unchanged from October and down from 5.2 at the start of the year. For workers who have graduated from high school, the unemployment rate is below 5.0 percent. Workers with a bachelor's or higher degree had an unemployment rate of 2.3 percent. The labor force grew by 97,000 workers in November.
Katrina's Lingering Effects
Previous BLS surveys found that approximately 900,000 people were made evacuees by Hurricane Katrina. By November, approximately half had returned to their homes. Over 55 percent of evacuees had returned to the labor force. The unemployment rate for all evacuees, at 20.5 percent, was sharply higher than the national average. For evacuees who were able to return home, the unemployment rate was over twice the national average at 12.5 percent. For those unable to return home, unemployment was at 27.8 percent. As evacuees continue to return to their homes or become acclimated elsewhere, their unemployment numbers will continue to fall. Key to this process is economic revitalization and job growth along the Gulf Coast. That process, like so much in the economy, is throttled by the cost of capital. Again, the 2003 tax cuts make a difference.
The U.S. economy has taken two tough punches in the last eighteen months. High energy prices and catastrophic hurricanes were hurdles to economic growth. However, the economy has surpassed these problems and continued to expand and add jobs. This demonstrates strong fundamentals and a good deal of resiliency.
Unfortunately, some overlook this feat and spend their time looking under every rock for a small bit of bad news. Too many media reports concern themselves with potential problems that disappear in the next economic quarter or even in the next month. For example, remember the "jobless recovery"? The key fact to remember is this: the economy has added over 150,000 jobs every month in 2005, despite several major hurricanes and high energy prices. No matter how you look at it, that's impressive.
The Real Danger
Congress may pose a greater threat to future economic growth than oil rich sheikdoms and Nature's fury. Key components of the 2003 tax cuts-specifically, the reductions in capital gains and dividends tax rates-are set to expire at the end of 2008. Not only do these provisions lower capital acquisition costs for expanding firms, but they have also become a closely-watched indicator of what Congress will do to extend and make permanent other important elements of the 2001 and 2003 tax cuts. If Congress fails to extend the low taxes on dividends and capital gains, that failure will be interpreted by Chief Financial Officers as a sign that business taxes will be rising very soon. That will lead to lower investment and slower job creation. Businesses are already planning expansions for 2009, and a failure to extend these tax cuts will have a lasting negative impact on the economy.
The economy is in strong shape, and today's job numbers reflect that. Pro-growth policies, such as extending the 2003 tax cuts, will show that Congress is serious about economic growth and expanding employment.