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Job Market Remains Solid; Consumer Sentiment Slips

cnbc.com
Friday, 8 Dec 2006 | 10:38 AM ET

The latest picture of the economy shows a strong labor market but some misgivings among consumers.

The Labor Department reported that November payrolls increased a stronger-than-expected 132,000 jobs in November, though the unemployment rate edged up slightly from October.

But consumer sentiment fell in December, a preliminary report showed, as consumers
pared back their views of future financial conditions.

The University of Michigan said its preliminary reading on consumer sentiment in December was 90.2, down from November's reading of 92.1.

The index had been expected to ease to 92.0, according to a median forecast of economists polled by Reuters.

Consumer spending accounts for about two-thirds of U.S. economic activity, but in recent years confidence measures have been a weak guide to actual spending. Consumers' expectations for increased inflation was little changed in December, the report said.

The unemployment rate, meanwhile, ticked up to 4.5% in November from the 5-1/2-year low of 4.4% it reached in October. The new-jobs total last month topped economist forecasts that on average had predicted 110,000 jobs would be created.

The hiring was focused in the service industries, where 172,000 jobs were added, while goods-producing industries shed 40,000 jobs. Some 29,000 construction jobs were lost in November on top of a 24,000-job reduction in October, reflecting the weaker homebuilding and other construction sectors.

The department revised down the number of jobs created in October to 79,000 from a previously reported 92,000 but it said that, in September, a robust 203,000 jobs were created instead of the 148,000 it had reported previously.

Average weekly hours worked were unchanged in November at 33.9. Average hourly earnings rose 0.2%, slightly less than the 0.3% that had been forecast.

With Federal Reserve policymakers meeting next Tuesday, markets are paying close attention to the data in an attempt to gather clues about where interest rates may be heading. Fed officials have been hiking rates for the past two years in an attempt to keep inflation in check without triggering a full-blown recession.

"The economy is sturdy," said Mark Zandi, chief economist at Moody's Economy.com on CNBC's "Squawk Box" (Play-By-Play: Better Than Expected Jobs Report Good For Economy?).

According to Zandi, the current rate of job growth will not allow unemployment to edge up.

At this rate, there won't be any slack in the job market, Zandi said.

"Wage growth will be very strong and rising at a rate above productivity growth, so it's inflationary," Zandi said. "So this isn't the kind of growth that will elicit a Fed ease, and in fact, if we want to see the Fed avoid a tightening, we're going to have to have a period of job growth that is closer to that 100,000 level on a consistent basis."

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