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Mohamed A. El-Erian Headshot

Employment Healing Continues, But Still Frustratingly Gradual

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The December employment report released this morning confirms that the labor market continues to heal. This is good news. The challenge now is to consolidate the improvement. For that, politicians need to overcome self-made problems; also, and critically, they need to stop creating new ones.

This morning's good news goes beyond the headline number of 155,000 new jobs created in December. The purchasing power of the labor force is now up 4.1 percent year-on-year, as both hours worked and earnings continued to edge up in December.

There was also some encouraging news on structural indicators -- those that influence in an important fashion the longer-term prospects for the labor market. The number of long-term unemployed, and the time that they are jobless, both edged lower.

Yet, given the extent of damage created by the global financial crisis and the great recession, the American economy is yet to attain "escape velocity." A lot more improvement is needed, and urgently so.

Just remember the scale of the nation's unemployment crisis. The headline unemployment rate is still way too high at 7.8 percent. Some 39 percent of those out of work (or 4.8 million people) are long-term unemployed; and millions others are not counted as they have dropped out of the labor force altogether.

Youth unemployment is also worrisome, especially if you are a parent of a teenager. Just under a quarter of 16- to 19-year-olds in the labor force (23.6 percent to be exact) are jobless.

Fortunately, large companies are in a very good position to hire more and to accelerate the country's economic healing. Their balance sheets are strong, and they hold lots of cash. As this involves making long-term commitments -- particularly when it comes to investments in new plant and certain equipment -- it will not be material unless Congress gets its act together.

It does not take an economist to know that recurrent political crises, and the uncertainty they create, are not conducive to hiring and business expansion. And with today's harmful polarization and dysfunction in Congress, it is not just about overcoming existing problems. As the micro deal on the fiscal cliff demonstrates, Congress has a way of "solving" existing problems by creating new ones!

As they position and posture ahead of their return to the bargaining table, politicians would be advised to keep the nation's unemployment situation front and center in their analysis, deliberations and motivation.

Yes, the labor market continues to heal, but it remains fragile. For the sake of millions struggling to meet their families' legitimate needs and aspirations, a lot more progress should (and must) be made. Congress can play a determining role in accelerating the healing; but it can also frustrate and reverse it.