Is last week's jobs report a sign of a real recovery?

Friday morning, the Labor Department released a truly excellent jobs report. The headline number was great, with 321,000 jobs added in November. Digging deeper, the trends really just look even better. Wages are rising. Hours worked are rising. The previous two months' numbers were revised upward as well, giving us a three-month average of 278,000 jobs.

Given that the total population of working age people is growing slowly at the moment, that's excellent job growth. It's enough to make one hope that the American economy is genuinely out of the woods and 2015 will be the year that we stop thinking of ourselves as living in the shadow of the Great Recession.

So is it true?

Reasons for optimism

There is real reason to be optimistic about the future of the American economy. And it's not just today's excellent jobs report or the two previous good ones. Looking at the year as a whole, we're on track to add 2.65 million jobs in 2014 which would make it the best year since the boom of 1999.

What's more, 2015 looks good, too. The trend toward cheaper crude oil prices is a broad boost to the American economy. The Obama administration's new immigration policies are a boost to the American economy. The state and local budget cutbacks that slowed the economy in 2009-2011 are over. And there's reason to believe the government-by-crisis that dominated congressional politics in 2011-2013 is also over. Unlike in previous years, there are no big automatic spending cuts or tax hikes lurking in the federal budget to hold the economy back. We'll probably even get a moderate dose of fiscal stimulus from the federal government.

Last, but by no means least, there's the question of monetary stimulus. Interest rates are zero this winter, just as they were the winter before and the winter before that (and the previous three). But the meaning of low interest rates changes as the economic fundamentals change. Back in 2009 with massive excess capacity throughout the economy, the Fed was effectively trying to drive up a steep hill. The economy of 2014 offers a much gentler slope. So similar interest rates should offer a bigger kick.

On the other hand

All the news I can see is good. But my enthusiasm is tempered by the "recovery winter" experience of late 2011 and early 2012 when the economy also had a string of good jobs numbers. It turned out to be a mirage. The November 2014 jobs report is a triumph, but January 2012 was even better — 360,000 new jobs. The next month things slowed to 226,000. Then 243,000.

Then instead of a new dawn of prosperity, we got a disastrous spring. 96,000 jobs in April. 110,000 in May. 88,000 in June. Things picked up after that, but not in an exuberant happy-days-are-here-again kind of way. It was just a return to the long hard slog of a recovery.

What went wrong? In a word: events. Things took a turn south in Europe. The Federal Reserve lost its nerve on unconventional policy.

Maybe there was some bad luck. Maybe the seasonal adjustment algorithm was a little discombobulated over the winter. Whatever the cause, it was — and is — a reminder that the economy is hard to predict, and subject to a wide variety of shocks from a range of locations.

The path forward

The recent news has been good and the outlook seems bright, if uncertain. The most important question is how policymakers respond to the good news. With luck, Congress will continue to follow the relatively responsible course of 2014 rather than the disastrous one of 2011. That means no more debt-ceiling debacles. It means congressional gridlock and stasis rather than a new government shutdown.

But the key actor is the Federal Reserve. Financial markets are only very modestly up on the good news about the labor market.

This is because, at the moment, it's widely anticipated that the faster the economy grows this winter, the sooner the Fed will hike interest rates come springtime. In other words, good news implies coming bad news. That's a recipe for slow growth rather than a takeoff.

Of course, if for some reason inflation spikes well above the Fed's 2 percent target, then an early rate hike may be necessary. But Janet Yellen needs to disabuse the world of the notion that solid growth alone will prompt tighter money. To get a boom, the Fed needs to be willing to welcome a boom. If people can get jobs and raises without sparking a surge in consumer prices, that should be welcomed, not feared.

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