As I’ve said in the past, the danger posed by the fiscal cliff is not solely whether we go over the side or not – it also matters what shape our economy is in before the plunge.  Last week’s jobs report may have seemed like good news for the latter, but unfortunately a closer look at the numbers revealed a mixed bag.

The headline number in Friday’s non-farm payroll report was well above expectations. The US created 146k jobs in November, versus an estimate of just 85k. In addition, the unemployment rate dropped to 7.7%, its lowest level since December of 2008. That said, there were a few caveats.

First, the number of net new jobs was right in line with the six- month average. The reason it came as a positive surprise was that economists had a relatively low estimate, as they were not sure how much Hurricane Sandy might impact the numbers. Second, the previous month’s estimate was revised down by 33k jobs.

Third, hourly earnings continue to stagnate. Hourly wages are up just 1.7% from a year ago, close to a multi-decade low and below the rate of inflation. In other words, while more people are working, few are getting raises.  Finally, the drop in the unemployment rate can be partly attributed to another drop in the participation rate, which means fewer people are engaged in the work force.

All in, the report confirms the pattern of the past six months: job creation has improved from the summer lows, but remains stuck at around 150k. While this level will slowly bring down the unemployment rate, it is too slow to produce much in the way of wage gains.

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