Defying predictions that the government shutdown would sap job growth, private employers added more than 200,000 positions in October, well above even the most optimistic estimates on Wall Street.
Staff and news service reports
In addition to the healthier-than-expected number for job creation last month, the Labor Department boosted the number of reported hires in August and September by 60,000.
The unemployment rate, based on a separate survey and one that counted furloughed federal employees as out of work, rose to 7.3 percent in October from 7.2 percent in September.
The report by the Labor Department on Friday had been delayed by a week because of the shutdown last month, and there had been an unusual degree of uncertainty among economists about how the data would shake out.
The combination of faster job growth in October and the sizable upward revisions for previous months strengthens the possibility that the Federal Reserve will act sooner rather than later to ease efforts to stimulate the economy.
The central bank had initially been expected to scale back its $85 billion a month in purchases of Treasury securities and mortgage-backed bonds in September. But the Fed’s policymakers led by chairman Ben S. Bernanke surprised Wall Street by not scaling back in light of mixed economic signals over the summer and lackluster job creation.
Esther George, president of the Federal Reserve Bank of Kansas City, had dissented against the Fed’s September surprise. She said Friday that the October jobs report further “encouraged” her belief that the Fed needs to start pulling back its bond buying.
In the wake of Friday’s report, some experts said the Fed was more likely to announce that it intended to scale back when policymakers next meet December 17-18, especially if the jobs report for November is similarly robust.
The October jobs growth and the upward revisions of previous months’ data “put tapering discussions front and center again,” said Dan Heckman, national investment consultant for U.S. Bank Private Client Reserve in Kansas City.
Bernanke spoke Friday at an International Monetary Fund conference but did not comment on economic conditions or the Fed’s interest rate policies.
The jobs report was the second piece of unexpectedly robust economic news that Wall Street received in the past two days. The Commerce Department said Thursday that the U.S. economy grew at a 2.8 percent annualized rate in the third quarter, better than the 2.5 percent rate economists were looking for.
The stock market has often sold off on prospects for an early taper after past data releases, Wall Street rallied Friday as traders bet that stronger economic growth and rising earnings would offset the dampening effect of less stimulus from the Fed. The Dow Jones Industrial Average gained 167.80 points and closed at a record 15,761.78.
Although the one-month pop in payrolls caught most analysts off guard, Guy Berger of RBS noted that the addition of 204,000 nonfarm jobs in October was in line with the 194,000 average per month of the last 12 months.
“Sometimes it’s a little faster, sometimes it’s a little slower,” Berger said. “The labor market is in decent shape, but it’s not doing that much better than six months or a year ago.”
The consensus among Wall Street economists, according to Bloomberg News, called for an increase in the unemployment rate to 7.3 percent in October, with payrolls growing by 120,000. In fact, there was an unusually large range of expectations in the days leading up to the delayed report, with economists calling for anywhere from 50,000 to 175,000 new jobs and an unemployment rate of between 7.2 percent and 7.6 percent.
The bulk of the job gains came in areas such as leisure and hospitality, retail, and professional and technical services.
Manufacturers added 19,000 jobs, the sector’s best showing since February, helped in part by strong auto sales. Manufacturing is closely watched as a barometer for the broader economy, so the gain in factories was particularly encouraging.
Still, Chad Moutray, chief economist for the National Association of Manufacturers, described the hiring as “disappointingly slow. On a year-over-year basis, manufacturers have added 55,000 additional workers, or 2.4 percent of the 2.3 million nonfarm payroll workers added over the past 12 months.”
A separate question from the timing of the Fed tapering, which affects longer-term interest rates for loans like mortgages, is when the central bank will begin raising short-term interest rates from their current rock-bottom levels. The Fed has signaled that that won’t happen before unemployment falls to 6.5 percent, although some observers now think policymakers will lower that threshold to 6 percent next year.
If the economy continues to create 200,000 or more jobs a month over the next 12 months, the unemployment rate would reach 6.5 percent by December 2014. So whatever threshold the Fed ultimately chooses, it doesn’t seem like short-term interest rates will be rising anytime soon.
One mystery buried in Friday’s report was a drop of 720,000 in the size of the labor force and the ensuing fall in the labor participation rate to 62.8 percent, a 35-year low.
Although the labor participation rate has been weak in recent years as discouraged workers drop out of the workforce and baby boomers retire, it was the biggest one-month decline since the end of 2009. A smaller labor force has the effect of making the overall unemployment rate appear lower, but could be a troubling sign for the long-term health of the economy.