The November employment report is an ominous portent of sluggish economic growth or recession

A decline in the November unemployment rate to 7.7%, from 7.9% the month before, and a still disappointing 146,000 November rise in non-farm payrolls were mistakenly viewed as signs of a strengthening economy. In response, yields in the US Treasury market rose and equity prices prices advanced. But, the realty is that the US economy is growing only feebly and remains vulnerable to slipping into stagnation or even recession. The unemployment rate declined in November only because of an ominous 350,000 plunge in the labor force, which more than offset a 122,000 decline in employment and a commensurate rise in unemployment in the Household survey. The 350,000 drop in the labor force reflects the continuing rise in the number of the discouraged unemployed, workers who have just given up looking for employment. Instead of declining, the reported labor force should be rising on a trend basis to reflect the growth of US population and school graduates. If the labor force had merely held stable in November, the unemployment rate would have increased to 8.0% instead of the dropping to 7.7% as reported. The percent of the population still in the labor force, termed the participation rate, is at record lows, a clear indication of the dire state of the employment situation. And the U-6 unemployment rate, which includes discouraged workers and those who unwillingly have taken part-time work because they cannot find full-time work, was 14.4% in November. The 146,000 rise in employment in the separate non-farm payroll survey is still disappointingly slow. Even if this rate of non-farm payroll rise were to persist, it would take years to return to full employment. And, there is a reasonable doubt that even this sluggish rate of employment gain will be maintained. There are too many negatives in the US and global economy for confidence that the pace of employment will significantly accelerate. And, there is certainly nothing in the November employment report to justify optimism that US economic growth will accelerate, or that inflation will intensify on a sustained basis. Instead, the US economy appears destined to either remain sluggish or slip into recession. There still must be a reversal of the excess indebtedness of all sectors of the US economy, including the debt of consumers, corporations, as well as the debt of the Federal, state and local governments. That alone mandates a slow economic growth pace. The expansion of Federal debt is, in effect, a cover for a lessening in the leverage of the other sectors of the economy. Consumers have to increase their savings rate as they scale back their high percentage of indebtedness to income. Corporations are likely to continue cautious over borrowing, despite historically low interest rates, as they limit their capital investment and employment expansion. The prospect of an increase in taxes and uncertainty over health-care and pension funding costs also deter business confidence. State and local governments are restrained by mandated requirements to balance their budgets, unfunded pension liabilities and high indebtedness as a percentage of their tax receipts, which constrain their access to market credit. There is little or no indication that a compromise can be reached before year-end to avoid the fiscal cliff's steep increase in taxes and sharp cuts in spending that will be imposed beginning in January. The fiscal cliff will impose an economic burden equal to some 4% of GDP, enough to push the economy into a recession. There are indications that both sides are continuing to play politics rather than offering serious compromises. For example, it is not necessary to raise marginal tax rates to increase tax revenues. Eliminating deductions will accomplish the same objective, as would eliminating subsidies to restrain spending. Europe appears to be slipping into a recession. The efforts to resolve their problems are designed to avoid the hard decisions and postpone the day of market failure. China's growth has slowed significantly. Though some recent data indicate a possible economic pick-up, The noted investor and analyst Marc Faber doubts that China's growth exceeds 4%, which would be a sharp growth slowdown from their prior pace. This, together with the recession in Europe and sluggishness or worse elsewhere, points to slow global inflation pressures,including commodity prices,and a possible global recession. In concert, this array of factors indicates a renewed decline in Treasury and other high grade yields. Municipal yields are benefiting from investors' efforts to protect themselves from the expected rise in marginal tax rates. However, there have been discussions that call for exempting tax-exempt income only up to the 28% tax bracket. That approach would impose a partial tax on currently tax-exempt income for those paying higher marginal tax rates. Grandfathering existing municipal issues from such an arrangement is possible, but has not yet garnered major support in discussions. If a US recession does materialize or we do go over the fiscal cliff, it would almost certainly lead to a cyclical decline in equity prices. Philip Braverman, President Braverman Financial and Economic Consulting One Hewitt Square #249 East Northport ,N.Y. 11731 This and prior reports can be accessed at Philipbraverman.blogspot.com I can be reached at Philipbraverman@Gmail.com