Unemployment falls to 8.6 percent; economy adds 120,000 jobs

Unemployment dropped to 8.6 percent in November, its lowest level in nearly three years.

The steep drop — the jobless rate was 9 percent a month ago — is good news for Democrats and President Obama, who is counting on a recovering economy to help him win a second term.

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The nation’s economy added 120,000 jobs in November, with the private sector adding 140,000. In another sign of a recovering market, September numbers were revised upward to 210,000 from 158,000, while October figures were revised from 80,000 to 100,000 gained.

It is the third straight month that the Labor Department figures have been revised to show a better-than-expected performance; the economy added 72,000 more jobs in the past two months than initially estimated.

Still, the headline figure of the falling unemployment number suggests a stronger recovery than the country is actually seeing.

The unemployment rate fell significantly because 315,000 people stopping looking for work and aren't considered as part of the unemployed.

“The numbers [are] good but not as good as the decline would suggest,” said Mark Zandi, chief economist for Moody's Analytics, in an interview on MSNBC.

“There are more jobs, and it's a pretty solid job gain, but there are fewer people out there looking for work, and that's not a good sign, when people aren't confident to look for work.”

The number of unemployed workers stands at 13.3 million.

Alan Krueger, chairman of the president's Council of Economic Advisers, issued a cautious statement about the numbers, saying that while they show the economy is continuing to recover, the "pace of improvement is still not fast enough given the large job losses from the recession that began in December 2007."

He also pointed out the world economy is "fragile" and made a pitch for the president's Jobs Act.

"While the U.S. economy is healing, the world economy continues to be in a fragile state and all economies are linked through trade and finance," he said in a statement. "In this environment, the president’s American Jobs Act is the right medicine to sustain and strengthen the recovery. In particular, with 13.3 million Americans still unemployed, and 43 percent of them unemployed for 6 months or longer, it would be a setback for the economy and American families if Congress were to allow extended unemployment benefits to expire at the end of the year. The president’s proposal to extend and expand the payroll tax cut for workers and small businesses also would provide a substantial boost to economic growth and job creation."

Republicans suggested the job gains were mostly related to holiday hiring.

“During the holidays, it’s always comforting to see an uptick in seasonal hiring, but far too many people still remain out of work and the economy still faces systemic problems," House Majority Leader Eric Cantor (R-Va.) said in a statement.

“Any job creation is welcome news, but the jobless rate in our country is still unacceptably high. This marks the 34th consecutive month of unemployment above 8 percent,” House Speaker John Boehner (R-Ohio) said at a Friday press conference. 

While holiday hiring likely picked up last month, the Labor Department tries to account for seasonal hiring — which was  “greater than normally expected,” Zandi said.

Zandi said the revisions reflect small-business job growth, a positive for the economy.

The report lands amid a debate in Congress over extending a payroll tax cut and federal unemployment benefits, which the president says would help spur the economy further.

Republicans are more divided on the merits of the tax cut, which Rep. Paul Ryan (R-Wis.), the House GOP budget czar, has described as a “sugar high.”

Economists have argued not extending the two programs could hurt the economy next year.

An even bigger worry for the economy is the European debt crisis, which could cause a global economic meltdown if it is not contained.

GOP leaders urged the Senate to act on the 23 jobs bills the House has passed.

House GOP conference Chairman Jeb Hensarling (Texas) said these bills, many of which gut government regulations, are “stacked like cordwood” in the Senate.

Republicans appear willing to extend unemployment benefits, but they want to cover the $44 billion yearly cost.

House and Senate Democrats have been ramping up their call for an extension of jobless benefits that provide up to 99 weeks of help to unemployed workers in some states.

Advocates support paying for the extension but suggest those offsets should kick in two to three years down the road to get the full economic impact for the economy.

House Republicans are likely to unveil their own proposal on Friday as they work to calm their members with ideas for how to pay for an extension of the payroll tax holiday and unemployment insurance benefits.

This story was posted at 8:35 a.m. and last updated at 10:11 a.m.

Erik Wasson contributed to this story.