October’s Job Growth Blew Estimates Out of the Water
The numbers from ADP’s October National Employment Report did not bode well for the more authoritative jobs reading from the Department of Labor. According to Moody’s Analytics chief economist Mark Zandi, whose firm helps compile the payroll processor’s data, the reason behind the month’s lower-than-expected gain of 130,000 jobs was clear.
“The government shutdown and debt limit brinksmanship hurt the already softening job market in October,” Zandi said in the report. Similarly, economists polled by Reuters expected the Labor Department’s numbers to show that employers added a meager 125,000 jobs last month. Government statistics show that private and government employers added an average of only 143,000 jobs per month from July through September, a decrease from the 182,000 jobs per month added from April through June and the 207,000 jobs added per month in the first three months of the year.
But the numbers defied expectations. The Employment Situation Report — released by the Department of Labor’s Bureau of Labor Statistics on Friday morning — revealed that total nonfarm payroll employment rose by 204,000 in October, an indication that the 16-day partial shutdown of the federal government did not prevent employers from adding positions to their payrolls at a more robust pace than expected. Even more encouragingly, the September gain was upwardly revised to 163,000 from 148,000, and August’s payroll additions were upwardly revised to 238,000 from 193,000. According to these new figures, average job creation over the past three months now exceeds a 200,000 per month pace.
“The economy seems to be heating up faster than people think,” TDAmeritrade chief strategist J.J. Kinahan told CNN. “It’s incredibly impressive.”
However, the jobs report was not free from blemishes. The unemployment rate did tick up 1 percentage point to 7.3 percent last month, an increase that reflects the month’s temporary federal furloughs. Alongside the rise in unemployment, which was the first recorded in three months, the labor force participation rate — the share of working-age Americans who are not employed and are looking for work — dipped 0.4 percent to 62.8 percent.
Furthermore, the type of jobs being created by the economy are still a concern, with part-time, low-wage jobs leading the gains. The leisure and hospitality sector added 53,000 positions to payrolls, while manufacturing added 19,000.
As ongoing proof that it will take the United States years to fill in the job gap left by the recession, the Labor Department’s October numbers show that 11.3 million Americans who wanted and were looking for work could not find employment last month, and 4 million of those individuals have been without work for six months or more. Plus, the number of individuals employed part-time for economic reasons — referred to as involuntary part-time workers — remained little changed at 8.1 million.
A broader measure of employment, the U-6 unemployment rate, which includes discouraged workers and involuntary part-time workers, rose to 13.8 percent from 13.6 percent after dropping in September.
Prior to the jobs data announcement, economists found the month’s gains difficult to predict because the degree to which the government shutdown disrupted business confidence was hard to gauge. “It will be difficult to tell how much is from the shutdown and how much is the underlying trend,” Barclays U.S. economist Dean Maki told The New York Times in an interview prior to the announcement. “There won’t be a clean way to do it.”
The Department of Labor sources data in two separate surveys, one of households to determine the unemployment rate and one of public-sector employers and private companies to calculate how many jobs the economy created. For the October report, furloughed workers were counted as unemployed for the household survey but as employed for the second survey. That is part of the reason why job growth appeared so healthy but the unemployment rate rose.
A so-called “clean jobs report,” one free from the fallout of the government shutdown, will not come until January, when December data will be published. “The [Federal Reserve’s] core criteria to change policy is clear evidence of a sustained improvement in the labor market outlook,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a note to clients, acquired by The New York Times. “Such evidence will not be available this year.”
Still, this sizable improvement will have significant implications for the Federal Reserve, as employment data are one of the most important indicators policymakers will consider when deciding whether to reduce the pace of the central bank’s $85 billion per month bond-buying program at its December meeting.
Wall Street was taken aback when Federal Reserve Chairman Ben Bernanke announced in September that monetary stimulus would remain at current levels. Despite the rather weak economic indicators, it was expected that Fed’s bond purchases would begin to be tapered in efforts to stimulate the economy.
“Once again the U.S. economy appears to be overcoming a summer swoon,” said Paul Ashworth, chief U.S. economist for Capital Economics, in a research note seen by CNN. “In our opinion, the data would justify the Fed reducing the pace of its asset purchases in December.”
The Labor Department’s jobs report was the first clear piece of evidence of the effect Washington’s political dysfunction had on the the economy. While it appears the crisis had relatively little impact, many economists believe it will depress economic growth this quarter. Keith Hall, a senior research fellow at George Mason University’s Mercatus Center and a former director of the Bureau of Labor Statistics, told the Washington Post that he expects that the government shutdown reduced fourth-quarter gross domestic product by approximately half a percentage point, although most of the loss will be made up early next year.
Hall cited the last government shutdown as support. In 1995, half a percentage point was cut from GDP, but the rate of economic growth nearly doubled in the following quarter. “There’s almost always some catch-up that goes on,” he said to the Post. “I’m not sure there’s going to be any real lasting effect.”
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