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Unemployment falls to lowest level in almost four years

U.S. Sen. Dick Durbtalks about looming 'fiscal cliff  ' HiltChicago Friday December 7 2012. I John H. White~Sun-Times

U.S. Sen. Dick Durbin talks about the looming "fiscal cliff " at Hilton Chicago, Friday, December 7, 2012. I John H. White~Sun-Times

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Updated: January 9, 2013 6:11AM

The nation’s unemployment rate fell to the lowest level in almost four years while payroll data indicated solid job growth Friday, so why didn’t the stock market go on a celebratory romp?

It’s because the latest government reports contained equal parts good and troubling news, while Washington’s protracted “fiscal cliff” negotiations cast a lengthening shadow over the economy. The Dow Jones industrial average rose just 81.09 points Friday after spending most of the session in a slightly lower range.

The jobless rate declined to 7.7 percent in November from 7.9 percent the prior month but the U.S. Labor Department said more people stopped looking for work. They might be deeply discouraged but they are not officially counted as unemployed.

The report on non-farm payrolls showed November job additions of 146,000, far ahead of projections, but the government also revised downward by 49,000 its earlier estimated job number for September and October.

Cynics will note that the numbers were reduced from the payroll report issued just before the November election. Conspiracy theorists need to remember that such revisions are common.

Investors continue to be on “Washington watch,” however, with little reported progress in negotiations between President Barack Obama and congressional leaders over budgetary issues. Without a deal, tax increases and spending cuts will kick in automatically, a step that some economists fear will fling the economy into recession.

During a stop in Chicago, U.S. Sen. Dick Durbin (D-Ill.) said he believes a deal is possible but that time is growing short. “I think progress is being made but it has to be made literally next week” before Congress leaves for its Christmas break, he said.

Durbin said Democrats are “open to good ideas” on increasing taxes for the wealthiest payers, an indication of possible compromise on the party’s push for rate hikes for those earning higher incomes. He also said there’s a paramount need for Medicare to be part of the conversation, as the program otherwise will be broke in about a dozen years.

But Durbin, an assistant majority leader, said he doesn’t see how Medicaid could be cut without hurting people and that Social Security isn’t an issue because it doesn’t contribute to the federal deficit.

Durbin said he wasn’t sure if the election results amounted to a mandate. “There was a work order, though,” he said. “The American people said to politicians, ‘For goodness sake, roll up your sleeves, compromise, come up with some solution and get the country moving again.’”

In Washington, House Speaker John Boehner, leading the Republican side of the talks, bemoaned that the White House has not offered a compromise. Noting that Republicans signed on to closing $800 billion in tax loopholes for the wealthy, Boehner said of Obama, “When is he going to take a step toward us?”

Another source of economic concern was a decline in a widely followed index of consumer confidence prepared by the University of Michigan. The measure fell to 74.5 from last month’s 82.7, hitting a four-month low.

Some took the result as a sign that fiscal cliff worries are taking hold with the public.

“That confirms my belief that the only thing the economy has to fear is Washington itself,” said Joel Naroff, who runs Naroff Economic Advisors in Holland, Penn.

Brian Wesbury, chief economist at First Trust Advisors LP in Wheaton, said the economy has many underlying strengths. Superstorm Sandy could have sharply reduced spending but didn’t, he said.

Without clear signals in the data, Wall Street was little moved. The Dow’s increase on Friday was just 0.6 percent to 13,155.13 points. The broader Standard & Poor’s 500 index gained 4.13 points, 0.3 percent, to 1,418.07 and the Nasdaq composite index slipped 11.23 points, 0.4 percent, to 2,978.04.

Investors mostly have assumed there will be a resolution of the fiscal cliff, as stock prices haven’t shown much volatility over the issue.

But some analysts said there’s a risk that people aren’t taking the cliff seriously enough. Carl Tannenbaum, chief economist at Northern Trust Corp., said there’s a potential for broad-based tax hikes on families and an abrupt end to unemployment benefits for many.

“As holiday sales to date suggest, households do not seem to be setting their budgets in anticipation of such a significant moderation in their resources,” he said. “So they could be in for quite a shock.”

Bruce Bittles, chief investment strategist at Robert W. Baird & Co., said the cliff poses a threat that the markets may be underestimating. He said he expects “rocky trading” until a rally arrives late this month.

Contributing: AP

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