Unemployment jumps, job creation slows. Is economic stall-out here?

The American jobs machine seems to have slipped into slow-motion mode in November.

The US economy gained a disappointing 39,000 jobs last month and the unemployment rate rose to 9.8 percent, up from 9.6 percent, the Labor Department reported Friday. This was a sharp drop-off from October, when the nation's economy added 172,000 jobs.

The report was a surprise to many economists, who had expected much better numbers given that recent statistics indicated that the economy was showing some signs of strength. Retailers, for example, have in recent days reported better-than-expected sales, but the jobs report showed a loss of 28,000 jobs in the sector. Moreover, some recent surveys pointed to greater optimism among consumers and businesses, but the November report showed very few sectors adding jobs, stagnant worker hours, and a rising tide of unemployed workers.

“We got a clunker,” says John Canally, chief economist at LPL Financial Research in Boston. “This report underscores the weak side of the economy.”

Economists will be taking a closer look at the report to try to glean whether November was an aberration or a sign of economic stall-out. The report may also be a catalyst for Congress and President Obama to reach an agreement on how to extend the Bush tax cuts, in a bid to eliminate uncertainty about the tax load businesses will bear after this year. It may also act as a prod for Congress to renew the extended benefits program for the unemployed.

In Washington, Austan Goolsbee, chairman of the president's Council of Economic Advisers, noted that the private sector continues to hire, with 50,000 jobs created last month. He argued that Congress should extend the expiring tax cuts for the middle class and the already-expired unemployment benefits.

“Failure to do this would jeopardize hundreds of thousands of additional jobs, and leave millions of Americans, who are out of work through no fault of their own, on their own,” said Mr. Goolsbee in a statement.

Republican House leader and Speaker-in-waiting John Boehner called on the lame-duck Congress to “do the right thing and vote immediately to cut spending and stop all the tax hikes.”

Groups lobbying for passage of additional unemployment benefits also saw the report as an opportunity to press Congress to act.

“It should be clear as day that the economy is in absolutely no shape to absorb cutbacks in the support that unemployment insurance provides to families, businesses, and overall growth,” said Christine Owens, executive director of the National Employment Law Project in Washington.

Although the November report did not meet Wall Street’s expectations, the stock market seemed to take the disappointment in stride, with the Dow Jones Industrial Average down modestly.

One reason the markets did not react more negatively is that some economists have decided the economy is stronger than the jobs numbers indicate.

“This could be a statistical fluke,” says David Wyss, chief economist at Standard and Poor’s in New York. “The survey was done a week earlier than normal; that could be important for the retail sector.”

In November, the Labor Department reported, the retail sector shed 28,000 jobs on a seasonally adjusted basis. Since then, retailers have reported relatively strong Black Friday sales. “Maybe more people are shopping online. You don’t need to hire as many people to service those calls,” says Mr. Wyss.

The jobs picture darkened, too, for manufacturing, which lost 13,000 jobs, and construction, which shed 5,000 jobs. State and local governments, trying to balance their budgets, continued to lay off workers, with 13,000 losing their jobs during the month.

The only bright spot was temp services, which added 40,000 workers. This increase was no surprise to Roy Krause, CEO of Ft. Lauderdale-based SFN Group, one of the nation’s largest suppliers of temporary workers.

“With the economy slow and uncertainty high, a lot of companies are using temps to begin their expansion phase,” says Mr. Krause. He says his company has had strong demand from industrial companies, accounting and finance firms, and businesses beefing up their clerical staffs.

“A lot of companies are making temps a permanent part of their workforce so [that] they can flex up and down to meet demand,” he says. Looking ahead, he says, he expects December will be “reasonably good” for the temp business, even if a little slower than November, when there were fewer holidays.