Strong Job Growth Offsets Housing's Drag on Economy
Saturday, November 3, 2007
Job growth roared ahead in October, new evidence that the U.S. economy is holding up reasonably well this fall despite problems in the housing and financial markets.
The Labor Department reported yesterday that employers added 166,000 positions to their payrolls last month, the best reading since the spring and twice what economists had expected. The unemployment rate was unchanged at 4.7 percent.
While analysts remain concerned that growth will slow in the coming months, the strong jobs report was the latest sign that it hasn't happened yet. The government said earlier in the week that the economy grew at a 3.9 percent annual rate in the third quarter.
"What this is telling you is, 'So far, so good,' " said Bruce Kasman, chief economist at J.P. Morgan Chase. "But by no means are we out of the woods."
The report was taken as evidence that while industries tied to housing continue to contract, a wide range of service businesses are expanding fast enough to more than make up for those losses.
The health-care sector added 34,400 jobs, employment services firms added 33,500, public schools operated by local governments added 34,600, and the professional services sector added 23,500.
The number of residential construction and residential specialty contracting jobs fell by a combined 21,500. And the manufacturing sector lost 21,000 jobs, driven by losses among automakers and industries such as furniture production that are tied to the housing market.
As the housing market continues its tumble, economists consider the labor market an even more important economic forecaster than usual. Even if Americans become less wealthy as their homes lose value, they will keep spending money if businesses keep expanding and hiring. Consumer spending is the economy's main driver.
"Businesses are still hiring," said Chris Rupkey, an economist with Bank of Tokyo-Mitsubishi in New York. "You can't have a recession without lost jobs."
In addition to creating more jobs, companies offered higher pay. The average wage for non-supervisory workers rose 0.2 percent from September, to $17.58 per hour, a 3.8 percent rise over the past year.
The Federal Reserve cut short-term interest rates this week to try to avert an economic slowdown. But the central bank indicated it was worried about inflation, suggesting it may not cut rates when its policymaking group meets next in December. The job growth data was widely seen as evidence to support that stance.
The news wasn't all good, however. While the unemployment rate has remained steady the past two months, a lower proportion of the working-age population is working. That could mean that people are dropping out of the labor force because they consider the market uncertain.
The survey of households from which that data is derived is based on a smaller sample, and is thus more volatile, than the survey of employers on which the overall job growth number is based. But the employers' survey is less reliable than usual in times of economic transition.
"We have strong job growth coming off of two quarters of strong GDP growth," said Jared Bernstein, an economist at the Economic Policy Institute. "That's what you would expect. But we also have fewer people working and surveys telling us people are not confident in the job market."
"It's hard to reconcile those messages," Bernstein said.
Staff writer Howard Schneider contributed to this report.