Nation adds 200,000 jobs in December hiring surge

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WASHINGTON — Four painful years after the Great Recession struck and wiped out 8.7 million jobs, the United States may finally be in an elusive pattern known as a virtuous cycle — an escalating loop of hiring and spending.

The nation added 200,000 jobs in December in a burst of hiring that drove the unemployment rate down two notches to 8.5 percent, its lowest in almost three years, and led economists to conclude that the improvement in the job market might just last.

“There is more horsepower to this economy than most believe,” said Sung Won Sohn, an economics professor at California State University, Channel Islands. “The stars are aligned right for a meaningful economic recovery.”

It was the sixth month in a row that the economy added at least 100,000 jobs, the longest streak since 2006. The economy added jobs every month of 2011, the first time that has happened since 2005.

And the unemployment rate, which peaked at 10 percent in October 2009 and stood at 9.1 percent in August, has fallen four months straight. It was 8.7 percent in November.

If economics textbooks and the best hopes of millions of unemployed Americans are confirmed, the virtuous cycle may be under way, which would suggest the job market will continue to strengthen.

When people are hired, they have more money to spend. The means greater demand for goods and services and results in businesses hiring even more people. That results in even more spending and leads to even more hiring.

That would be the reverse of the vicious cycle that took hold during the Great Recession. People lost jobs and spent less, so businesses rang up less sales and were forced to lay off more people. That led to even less spending and more layoffs.

“The labor market is healing,” said Diane Swonk, chief economist at Mesirow Financial. She cautioned that “we still have a long way to go — years — to recoup the losses we have endured.”

Indeed, the economy added 1.6 million jobs for all of 2011. That is better than the 940,000 added during 2010. In 2009, the most bruising year of the Great Recession, the nation lost more than 5 million.

But it will take 6 million more jobs to get the United States back to what it had in December 2007, when the recession began. Economists forecast the nation will add almost 2 million this year.

The unemployment report was the first to be released since Republicans across the country began voting to determine a candidate to face President Barack Obama this fall in an election that will turn on the economy.

Obama appears bound to face voters with the highest unemployment rate of any president running for re-election since World War II. Unemployment was 7.8 percent when Obama took office.

But the president’s re-election chances may hinge more on the direction of the unemployment rate than on what the rate is come Election Day. The rate was a still-high 7.2 percent when Ronald Reagan beat Walter Mondale in 1984, but it had fallen from 10.8 percent two years earlier.

Obama, visiting the new Consumer Financial Protection Bureau in Washington, said: “We have made real progress. Now is not the time to stop.” He called on Congress to extend a tax Social Security payroll tax cut that is due to expire at the end of next month.

Campaigning in New Hampshire for Obama’s job, former Pennsylvania Sen. Rick Santorum claimed credit for Republicans, suggesting the gains were tied to voter optimism that a Republican would move into the White House in 2013.

The report painted a picture of a broadly improving job market. Average hourly pay rose by 4 cents. The average workweek lengthened by six minutes, a sign that business is picking up and more companies may soon need to hire.

The private sector added 212,000 jobs in December. That gain was offset by 12,000 layoffs by governments.

Hiring increased across industries. Manufacturing added 23,000 jobs, as did health care. Transportation and warehousing added 50,000 jobs. Retailers added 28,000. Even the construction industry added 17,000.