Strong Jobs Report Eases Fears Over Economy's Health

U.S. employment rose by 110,000 jobs in September and a weak report in August was revised upward, offering signs that the economy continues to grow even as the nation wrestles with turmoil in the credit markets.

The Labor Department report released yesterday showed widespread job losses in the housing and mortgage-related industries, but gains in health care and professional services more than made up the difference.

The report sent stock prices up sharply, with the Standard & Poor's 500-stock index closing at a new high. The report also overshadowed news that two major banks would absorb large losses related to the subprime mortgage crisis.

Merrill Lynch said yesterday that it would record a loss in its third quarter after subtracting about $5 billion from the value of its debt securities and other loans related to subprime mortgages. Washington Mutual said its third-quarter earnings would fall 75 percent on loan write-downs. The disclosures came days after Citigroup and UBS said they also would record losses because of billions of dollars of mortgage-related write-downs.

The jobs report represented an about-face from a month ago, when the federal government surprised economists with estimates that the number of jobs had declined by 4,000, prompting worries that a recession might be in the offing. Those fears eased yesterday after the Labor Department said it revised the August numbers to show that the economy gained 89,000 jobs that month.

"The bottom line is that this screams no recession," said Stuart G. Hoffman, chief economist at PNC Financial Services Group.

The unemployment rate reached 4.7 percent in September, compared with 4.6 percent in August. Wages also rose, up 0.4 percent to an average of $17.57 an hour, suggesting that the labor market remains tight. Separately, the Federal Reserve reported that consumer borrowing rose at an annual rate of 5.9 percent in August, the fastest pace in three months.

President Bush said the jobs report pointed to a "vibrant and strong" economy, and he urged Congress to keep taxes low.

In brief remarks from the Oval Office, he said he was mindful that some homeowners were worried about mortgage payments or the rising cost of college but added that with the revisions from August, "it means that we've had 49 consecutive months of job creation. And that's the longest uninterrupted job growth on record for our country."

Economists said the upbeat jobs report would make the Federal Reserve less likely to cut its benchmark interest rate when it meets at the end of the month. After the credit crunch caused markets to fall last month, the Fed cut its key interest rate by half a percentage point, to 4.75 percent, and said it would act as needed to keep inflation and economic growth steady.

"What this does is give the Fed a lot more time to react, and maybe not move at all, until December," said John Silvia, chief economist at Wachovia Bank.

In a speech in Philadelphia yesterday, Federal Reserve Vice Chairman Donald L. Kohn appeared to reinforce that view. Without addressing whether he supported another rate cut, he said he expected the economy to improve.