The nation’s unemployment rate fell to 6 percent in October as companies added jobs for a third straight month, offering compelling evidence that the long jobless recovery at last has given way to more normal expansion.
The Labor Department report Friday was greeted by economists as a signal that the missing piece of the economic recovery has fallen into place, setting the stage for sustainable growth over the next several quarters.
“What makes it a blockbuster report is that it’s the ingredient that we’ve all been looking for in the economy,” said Ethan Harris, chief U.S. economist for Lehman Bros. “There have been bigger reports with bigger surprises, but this is what everyone has been zeroing in on. We finally have cleared the first hurdle to a normal recovery.”
The Bureau of Labor Statistics reported that payrolls grew by 126,000 last month, significantly more than the 50,000 new jobs that economists had predicted. Equally important, the bureau upwardly revised figures from September and August, showing that the economy added a total of 286,000 jobs over the past three months. That was the best three-month total since late in 2000, before the economy slipped into recession and proceeded to shed 2.6 million jobs over the next 30 months.
“We can finally put the nail in the coffin of the jobless recovery,” said Ken Mayland, president of ClearView Economics. “We are back on a rising job track.”
While the report was significantly better even than “whisper” numbers on Wall Street, it was still well short of what typically would be expected in the 23rd month of an expansion, and investors took it in stride. Stock prices succumbed to a modest selloff late in the session, and long-term interest rates edged higher on the bond market.
“The market entered the day with a different mind-set than it has had for the past three years,” said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. Instead of bracing for bad news, he said, traders were “hoping for something better” than published forecasts and so had little reaction once the figures were digested.
Even a published report suggesting that the Federal Reserve will change its policy statement on interest rates next month did little to ruffle feathers on the bond market, which normally follows such reports closely.
Despite the turnaround in the labor market and the sizzling 7.2 percent third-quarter growth rate, many analysts expect the central bank to keep the benchmark overnight lending rate at a 45-year low of 1 percent well into 2004 and possibly into 2005.
Fed Gov. Ben Bernanke said Thursday that with inflation almost non-existent, the central bank can afford to be patient. At a conference in Pittsburgh, Bernanke said there is “considerable scope for a continuation of the currently accommodative monetary policy without undue risk to price stability.”
Analysts said the Fed is determined to do all it can to generate an economic boom and avoid the sluggish growth that has been the hallmark of this recovery’s early stages.
“If (job growth) accelerates into the 200,000 range and the unemployment rate falls, that’s when the clock starts ticking on a Fed rate hike,” said Harris. “The Fed is pretty determined to keep its foot on the accelerator until it is forced to do otherwise.”
The economy’s growing momentum appears likely to neutralize what had been one of the biggest issues for Democrats who hope to challenge President Bush in next year’s presidential election.
And Bush, facing a steady stream of bad news from Iraq, was eager to trumpet the positive economic report Friday.
“Things are beginning to brighten up for people looking for work, which is positive,” Bush told a community college audience in North Carolina. “This is the beginning of good news for job seekers.”
Job growth last month was strongest in service sector industries like health and education, while the battered manufacturing sector shed jobs for a 39th straight month.
John Silvia, chief economist for Wachovia Securities, said that while he expects sustainable growth over the next year, it will fall short of the growth seen in past recoveries. And he does not foresee a return to the type of job growth seen in the mid- and late 1990s, when the economy routinely added more than 300,000 jobs a month.
“My sense is that you’re going to get good, solid numbers in terms of job growth, but you will still get below what has been typical in a recovery period,” he said. “It’s one of the strange outcomes of the investment in technology.”
While the jobless rate has edged lower from a nine-year peak of 6.4 percent in June, some forecasters say it could rise again as individuals begin looking for work again, encouraged by the strong economic growth.
David Rosenberg, chief North American economist for Merrill Lynch, points out that the “augmented” unemployment rate, which factors in marginal workers who have temporarily dropped out of the labor force, is still at 9 percent, compared with 8.6 percent a year ago.
“This enormous pool of available workers is perhaps one key reason why wage growth is still slowing,” he said in a note.
The service sector added 143,000 new jobs last month, the largest increase in nine months. That included a 33,000 gain in temporary employment services, which have added jobs for the last five months.
Economists say that shows companies still remain a bit hesitant about the strength of the recovery and are waiting to take on the increased costs of hiring new workers.
“In the short run, they are hiring temporary workers,” Mayland said. “It is creating a pent-up demand for hiring. I think the rebound is sustainable and as we build up a track record,” more hiring will follow.
Mayland said the positive employment picture is great news for the holiday season. Consumer confidence should spike, making shoppers more willing to open their wallets. That will help reduce business inventory and lead to new jobs.
The Associated Press and Reuters contributed to this report.