Suddenly, it seems the holiday season might be merrier than economists had expected. The economy added 204,000 jobs in October, the Labor Department said Friday – far more than the consensus forecast of 120,000. Job growth figures for August and September were revised upward by 60,000.
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Combined with Thursday’s report showing healthier than expected growth in the U.S. economy in the third quarter and stronger than expected rise in personal income in September, the latest numbers are an added sign that the economy had lifted out of its summer doldrums. The report also signals the private sector had reversed a mid-year slowdown in hiring and was building momentum heading into the fall--all despite last month’s government shutdown and debt-ceiling standoff.
The private sector added 212,000 jobs in October – the most since February – fueled by broad-based gains in retail, leisure and hospitality, business services and manufacturing. Still, economists warn that one healthy report may not be enough to ease worries about the employment market – especially given that the latest report was distorted by the shutdown and related changes in data collection methods.
Here are three key takeaways from the new jobs numbers:
The Shutdown
The monthly employment report includes data from two surveys, one of households and one of employers. The surveys treated furloughed government workers differently, with the household survey counting furloughed workers as temporarily laid off. That may help explain a dramatic drop of 735,000 in the number of people employed and the uptick in the unemployment rate to 7.3 percent, but those figures should be largely reversed next month.
The bottom line: “The near three-week Federal government shutdown had little, if any, impact on payrolls,” writes Paul Ashworth, chief U.S. economist at Capital Economics. That doesn’t mean the economic impact was negligible, just that employers may not have been scared out of hiring by the dysfunction in D.C. Again, next months numbers may clarify just what longer-term impact the shutdown may have had.
The Obama Administration
Together, the surprisingly upbeat economic data represent good news for an Obama administration that desperately needs some after having been battered by the troubled rollout of the HealthCare.gov website for more than a month. And the jobs data presented an opportunity for the White House to hammer Republicans again over last month’s government shutdown.
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“The upward revisions to job growth in August and September, combined with solid third quarter GDP growth reported yesterday, suggest that the economy was gaining traction in the months leading up to the government shutdown,” Jason Furman, chairman of the president’s Council of Economic Advisers, wrote in a post on the White House blog. “There should be no debate that the shutdown and debt limit brinksmanship inflicted unnecessary damage on the economy in October.”
The Fed
The October data may ease concerns about the impact of the shutdown, but it only heightened speculation that Federal Reserve officials might decide to pull back on their program of $85 billion in monthly asset purchases when they meet on December 17 and 18 – sooner than many analysts have been forecasting.
“Together with the news yesterday of a stronger 2.8 percent gain in third-quarter GDP growth, the Fed now has the data to justify making its first reduction at December's FOMC meeting, but whether it will or not is still unclear,” Ashworth wrote in a note to clients Friday morning. “Frankly, given all the flip-flopping, it's hard to know exactly what evidence would satisfy the majority of Fed officials.”
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The October gains raise the average monthly payroll expansion over the last year to 194,000 – a level that is “close to the Federal Reserve’s implicit 200,000 jobs-per-month threshold to consider beginning a tapering of asset purchases,” Diane Swonk, an economist with Mesirow Financial in Chicago wrote Friday.
Fed officials still face a potential Catch-22, with the possibility that heightened expectations of tapering will cause interest rates to spike, putting a potential damper on the growth and making the decision to taper all the more risky.
The Nature of the Jobs Recovery
“At a time like this it’s useful to step back and take stock of the larger picture,” Heidi Shierholz of the liberal Economic Policy Institute wrote Friday. “The larger picture, however, is grim. We need 8.0 million jobs to get back to the pre-recession unemployment rate, and at the average rate of growth of the last 12 months, that won’t happen for another five years.”
The labor force shrank by 720,000 and the share of people with jobs or looking for them dropped to 62.8 percent, the lowest since March 1978. Mesirow also noted that almost half the job gains in October came in the form of low-paying positions in the leisure, hospitality and retail sectors. “Gains in payroll employment are welcome,” she wrote, “but the October job gains were not of the quality needed for a more self-feeding recovery.”
Next month's data should help clarfiy the near-term trends, but the employment picture still isn't as pretty as it should be.
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