Published November 07, 2013
The U.S. economy added 204,000 jobs in October, easily beating forecasts despite the partial government shutdown last month. And the September number was revised upward, suggesting labor markets may be strengthening after a brief late-summer backslide.
The U.S. Labor Department said the headline unemployment rate edged higher to 7.3%, up from 7.2% a month earlier. Forecasters had predicted 125,000 new jobs last month and that the unemployment rate would tick slightly higher.
In a statement, the Labor Department said the 16-day shutdown had “no discernible” impact on employers’ hiring practices. The effect was greater on households, according to the data.
The private sector added 212,000 jobs while the government shed 8,000 positions.
Stock Markets Unimpressed
Stock markets barely reacted to the report. The Dow Jones Industrial average was up 20 points in early trading.
The number of jobs created in October easily exceeded even the revised September figure of 163,000, up from 148,000. Most forecasters believed the October numbers would be impacted to the downside by the impasse in Congress over government debt.
The jobs data was released a week late due to the shutdown.
Because of irregularities caused by the 16-day partial government shutdown economists said the numbers would provide little help to Fed policy makers trying to decide whether or not to begin scaling back their easy-money policies.
“It’s going to be difficult for the Fed to discern anything from these numbers,” said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh. “I don’t think they’ll put much stock in them.”
Fed Needs More Information
The Fed has been intensely focusing on the labor markets for more than a year, ever since introducing a third program of bond purchases in September 2012 in an effort to keep interest rates low and spur economic activity.
"The data will add to the view that the Fed is gearing towards a tapering of its asset purchases, but policymakers will most likely wait for clearer signs that the economy is capable of growing at a faster rate than seen in recent months, hoping to see a pace of economic growth that will eat into unemployment," said Chris Williams, chief economists at research firm Markit.
The bond purchases, known as quantitative easing, seemed to be working through the first half of 2013 as the unemployment rate fell to its lowest level since the recession that followed the financial crisis of 2008.
But there were obvious cracks in the façade of the improving jobs market. For the first nine months of 2012 the average number of jobs created each month was 178,000, not terrible but also not the 200,000 most economists said were needed to make a significant dent in the unemployment rate.
In addition, each time the unemployment rate fell it was primarily because thousands of Americans had left the workforce that month frustrated by their inability to find a job. When people stop looking for a job they are no longer counted by the Labor Department as unemployed.
Labor Participation Rate Still Falling
The labor participation rate, a closely-watched measure of the proportion of the population employed or seeking employment, is at its lowest level in four decades. That number fell again in October to 62.8% compared with 63.2% in September.
The leisure and hospitality industry added 53,000 new jobs, the most since April, while professional and business services added 44,000 new positions. Payrolls in the retail sector increased 44,400 last month.
Manufacturing employment rose 19,000, the most since February. There were also gains in construction, where payrolls rose 11,000.
The average work week held steady at 34.4 hours. Hourly earnings gained two cents and have risen 2.2% over the past 12 months.
The Fed has kept a key interest rate, the fed funds rate, at near-zero for nearly five years. Fed policy makers have vowed not to lift that rate until the unemployment rate falls to a threshold of 6.5%.
As labor markets appeared to be strengthening in the spring and early summer, the Fed all but promised to begin scaling back its bond purchases in September. But then the mood changed and the Fed held off from tapering at its September meeting.
October Report Not Much Help
Most analysts are now predicting the Fed will delay tapering quantitative easing until at least March because the central bank will need the labor reports from November and December to make more informed decision.
There’s even growing chatter that the Fed may be contemplating boosting stimulus via additional bond purchases or by vowing to keep interest rates at near-zero for even longer than previously promised.
Earlier this week three staff economists at the Fed released a research paper saying the unemployment rate would drop faster if the central bank lowered its 6.5% threshold for raising interest rates to around 5.5%. The thought is that if the threshold were lowered more lending would occur leading to stronger economic growth if borrowers were convinced interest rates will be staying low for a long time.
In any event, the October report may not be much help.
"Bottom line, given the impact of the shutdown, we have to wait until November's report to get a fuller picture of what's happening this fall but we're happy enough in the meantime," said Dan Greenhaus, chief global strategist at BTIG LLC.