23 Oct Jobless rate drops to 7.2%
Employers added a disappointing 148,000 jobs in September but the unemployment rate trickled down a touch to 7.2 percent, the government said Tuesday in a closely followed report more than two weeks late because of the partial government shutdown.
Economists had been flying blind in October as several key government reports were sidelined by the shutdown. Chief among them was the September jobs report since employment has become a key real-time barometer of the economy’s health.
And Tuesday that report came in mixed. Mainstream economists had expected as much as 180,000 new jobs last month, so the actual number was a letdown. But the Bureau of Labor Statistics also revised prior months’ numbers, and the 169,000 jobs first reported in August was revised up to 193,000.
Given the strong August, Tuesday’s report suggest the economy was decelerating before the partial government shutdown that began on Oct. 1 and threat of a voluntary default on U.S. bonds.
“The bad news is that the job market was soft even before the government shutdown and debt limit brinksmanship,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “The good news is that if lawmakers don’t make significant changes to policy in the upcoming budget negotiations, and I don’t think they will, the fiscal drag will fade going into next year and job growth will re-accelerate.”
The drag he cited includes this year’s end of a payroll-tax holiday that meant American workers were again contributing the full amount of their payments into the Medicare and Social Security systems, reducing what had been extra spending money for consumers. The drag also comes from the budget sequester, which imposed across-the-board cuts in spending by parts of the government including defense, a big part of the U.S. economy.
The private sector created 129,000 jobs in September, Tuesday’s report said, the average for the past three months. It’s a soft number for the world’s largest economy, and Jason Furman, the new head of the White House Council of Economic Advisers said the average is “lower than we can be fully satisfied with, partially reflecting the effects of fiscal contraction.”
House Speaker John Boehner, R-Ohio, pounced on the sluggish jobs report, using a statement minutes after the release of the report to re-engage on the fight that shut down the government over Republican opposition to the Affordable Care Act.
“Add the higher costs and rising premiums of ObamaCare on top of disappointing jobs numbers and underwhelming wage growth, and you have a recipe for economic stagnation,” the speaker said. “That’s why in the weeks and months ahead Republicans are going to continue to work to stop the president’s health care law, and to pursue pro-growth policies that strengthen our economy and expand opportunity for all Americans.”
Economists think the political turmoil dinged job growth in October and expect it will result in slower economic growth for the remainder of the year. The White House’s Furman said it was already apparent in the data.
“Prior to the shutdown, the four-week moving average of (first-time unemployment) claims fell to 305,000, the lowest level since May 2007. But initial claims spiked in the first two weeks of October,” he said.
The October jobs report also has been delayed, with a release date now for Nov. 8 as statisticians try to make up for a lost half-month of data collection.
A bright spot in Tuesday’s report was a tenth of a percentage point dip in the unemployment rate, down to 7.2 percent, the lowest since December 2008 when the financial crisis was in full bloom. The rate of participation in the labor force stayed the same in September, meaning that the tick down in the jobless rate was due to more hiring, not workers exiting the labor force. That was especially true for younger workers.
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“One encouraging note is the sharp move lower in youth unemployment, where the unemployment rate for 16-19 year olds has dropped from 23.7 percent in July to 21.4 percent in September, which has been driven by rising employment rather than falling participation,” noted economists John Ryding and Conrad DeQuadros at RDQ Economics, in an investment note Tuesday.
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There were also some positive signs within the mix of jobs created in September. The long-suffering construction sector added 20,000 jobs last month, and retailers added almost 21,000 workers ahead of the start of holiday hiring.
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“The pace of growth in retail hires has slowed, similar to what the rest of the labor market is experiencing,” Jack Kleinhenz, chief economist for the National Retail Federation, said in a statement. “Americans need to believe we are on a solid path out of this troubled economy and so far, they haven’t been given any reason to believe that, thus impacting their spending decisions and retailers’ ability to increase their payrolls.”
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Professional and business services, a largely white-collar sector with higher salaries, saw an increase of 32,000 jobs, and temporary help services, often a harbinger of future hiring, rose by more than 20,000.
On the downside, however, leisure and hospitality was a job-losing sector in September, shedding 13,000 workers. That’s troubling because this sector is sensitive to changes in spending by businesses, and suggests companies could be pulling back on employee travel.
The healthcare sector, always a job adder, grew by an anemic 6,800 positions last month, well below its trend. And manufacturing, a labor-intensive sector, saw employers add just 2,000 positions in September.
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“It’s clear that manufacturers continue to be hesitant to add new workers,” said Chad Moutray, chief economist for the National Association of Manufacturers.
The soft September report and shutdown-related delays in October data collection are leading economists to expect that the Federal Reserve will hold off any reduction of stimulus for the U.S. economy until next year.
Chairman Ben Bernanke last June said the Fed could begin tapering back its $85 billion a month of unconventional purchases of government and mortgage bonds. The effort is designed to stimulate risk taking, and the removal of its effect has been called the taper. Bernanke shocked the markets last month by holding off on a taper, and the same is expected next week at the Fed’s two-day meeting that ends Wednesday.
“We view the subdued pace of job growth, the impact on GDP from the shutdown, potential for another round of fiscal problems in the first quarter of next year and the current low level of inflation as reasons the Fed will likely defer tapering until early in the first quarter of next year,” Jared Franz, an economist with investment giant T. Rowe Price, said in a note to investors.
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GRAPHIC (from MCT Graphics, 202-383-6064): 20131022 Unemployment