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The Running of the Bears: Jobs Surge Sways Even Pessimists

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The skeptics about the U.S. economic recovery are turning optimistic.

Economists including former U.S. Treasury official Brad DeLong, Nobel Prize winner Paul Krugman and Stephen Stanley of Amherst Pierpont Securities say a hiring surge in November shows the outlook has finally improved.

The 321,000 advance in payrolls exceeded the most optimistic projection in a Bloomberg survey of economists, while the jobless rate held at a six-year low of 5.8 percent. Skeptics have worried that tax and regulatory policy, a lack of fiscal stimulus and a global slowdown are holding back U.S. growth.

The report was “the first good monthly report of the recovery, if I am not mistaken,” DeLong wrote on his blog and in a Twitter post. That’s because it’s the first monthly jobs report since before the recession with payroll growth exceeding 300,000 and unemployment below 6 percent, DeLong said.

DeLong, of the University of California, Berkeley, and former Treasury Secretary Lawrence Summers have called for more government spending to bolster the recovery.

Krugman, a Princeton University economist, wrote in his New York Times blog that this was “a genuinely good employment report this morning — adding jobs like it’s 1999, and some actual wage growth, finally.” At the same time, he said the economy faces risk from the Fed tightening policy too soon.

Krugman in mid-October warned that policy makers face the risk of a renewed downturn, similar to one that occurred in 1937 following the Great Depression. “We are by no means out of the Lesser Depression,” he wrote then.

Late Recovery

“You are finally seeing a recovery dynamic that is maybe five years late,” said Stanley, who says he was expecting monthly job gains of around 200,000 this year. “Now it feels like a natural recovery. The trend may well be 250,000 now, which is a step up.”

“The Fed has obviously provided a friendly liquidity environment,” Stanley said. An absence of fiscal gridlock, with the debt ceiling and government shutdown crises, has helped growth this year, he said.

Axel Merk, president and founder of Palo Alto, California- based Merk Investments, said he has become more optimistic about the economy than about the markets.

“Yes, some indicators have been improving,” Merk said. “Undoubtedly today’s report showed strength,” and “notably, wage pressures have started to creep in.”

In a commentary in July, Merk said he was concerned about a “possible market crash” and remained worried about stocks and how investors would react if the Fed raised rates faster than expected.

“The market has considered the glass to be half full on good news and bad news,” he said. “There’s nothing stopping the market from looking at the glass half empty on both good and bad news at some point.”

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