U.S. Economy: Payrolls Increase for First Time in Five Months
Employment in the U.S. rose in October for the first time in five months, a sign businesses may be starting to gain confidence in the prospects for a faster pace of growth.
Payrolls climbed 151,000, exceeding all estimates in a Bloomberg News survey of economists and following a revised 41,000 drop the prior month that was smaller than initially estimated, Labor Department figures showed today in Washington. Private payrolls expanded the most since April, while the jobless rate held at 9.6 percent.
Stocks and the dollar climbed and Treasuries declined as gains in hours worked and earnings added to optimism that an improvement in the labor market will boost household spending. Federal Reserve policy makers this week announced a second round of large-scale asset purchases in a bid to boost growth, even as recent reports showed larger-than-forecast gains in retail sales and manufacturing.
“Business is gradually starting to hire more,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Income is starting to grow for the household sector, which is good for consumer spending.”
The Standard & Poor’s 500 Index increased for a fifth straight day, capping a five-week stock rally with a gain of 0.4 percent to 1,225.85 at the 4 p.m. close of trading in New York. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 2.54 percent from 2.49 percent late yesterday. The dollar strengthened to $1.4037 per euro from $1.4207.
President Barack Obama said today’s employment report is a sign that the economy is recovering from the “terrible damage” caused by the worst recession since the 1930s. Even so, “the unemployment rate is still unacceptably high,” he said.
The loss of more than 8 million jobs, as a result of the 18-month recession that ended in June 2009, fueled Americans’ discontent with the economy, a central issue in the Nov. 2 elections that gave Republicans a majority in the House of Representatives. Democrats lost seats in the Senate while retaining control.
“It’s just going to take a long time to bring the unemployment rate down to more acceptable levels,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who had the highest estimate for payroll gains at 125,000.
Pending Home Resales
A report today from the National Association of Realtors showed that pending sales of existing homes unexpectedly declined in September, a sign the housing market at the center of the crisis remains a weak spot for the economy. The group’s index of pending home resales dropped 1.8 percent after a revised 4.4 percent gain the prior month.
The unemployment rate was forecast to stay at 9.6 percent, according to the median prediction of 80 economists surveyed by Bloomberg. Estimates ranged from 9.5 percent to 9.7 percent. The rate was 7.7 percent in January 2009, when Obama took office.
Employment at service-providers increased 146,000, the first gain since May. Construction companies added 5,000 workers, mainly reflecting stronger employment in civil construction. Manufacturing payrolls unexpectedly decreased by 7,000 last month. Economists had projected a gain of 5,000.
Retailers took on 27,900 workers as they prepared for the holiday shopping season starting this month. Department store chain Kohl’s Corp. had plans to hire about 40,000 people for the holiday period, 21 percent more than last year. Toys “R” Us Inc. said it may add about 45,000 employees for the season, including 10,000 at its temporary stores.
Overall payrolls, which increased for the first time since May, were forecast to climb by 60,000, according to the survey median. The Labor Department revised up payrolls by 110,000 in September and August. With the revisions, employment during the two months declined 42,000.
Private hiring, which excludes government agencies, rose 159,000 in October after a 107,000 gain. Economists projected an 80,000 increase, the survey showed.
Rockwell Collins Inc., a Cedar Rapids, Iowa-based maker of cockpit instruments and radios, on Oct. 29 said it will hire 800 people, boosting staff by 4 percent during the next 12 months. Ford Motor Co., the second-largest U.S. automaker, plans to add 1,200 jobs in Michigan by 2013 as sales rebound.
Average hourly earnings increased 1.7 percent in October from the same month last year. Earnings rose to $22.73 from $22.68 in the prior month.
The average work week for all workers rose to 34.3 hours, from 34.2 hours.
Government payrolls decreased by 8,000. State and local governments reduced employment by 7,000, while the federal government trimmed 1,000 jobs.
Fed policy makers this week announced a program of $600 billion in Treasury securities purchases through next June in a bid to lower the rate of unemployment. The central bank has already cut interest rates almost to zero and bought $1.7 trillion in securities.
“The pace of recovery in output and employment continues to be slow,” the Federal Open Market Committee said in a statement on Nov. 3. “Employers remain reluctant to add to payrolls,” and “the unemployment rate is elevated.”
Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, said the Fed may not need to complete the entire program of bond purchases if job growth continues at October’s pace.
“Jobs are picking up speed,” he said. “All we need to see is a little uptick in inflation, most likely next spring, and the Fed might need to start the process of normalizing interest rates next year quicker than the market is anticipating.”
Policy makers are concerned that a falling inflation rate increases the risk of deflation, or a general fall in prices that increases the burden of debt in real terms and erodes corporate profits.
Today’s report adds to signs the world’s largest economy may be picking up speed after growing at a 2 percent annual pace in the third quarter.
Retail sales climbed 0.6 percent in September, more than forecast. Services expanded in October at the fastest pace in three months, while manufacturing grew at the strongest rate in five months, according to reports this week from the Institute for Supply Management.
Economists at Morgan Stanley in New York today raised their tracking forecast for U.S. economic growth in the fourth quarter to 3.5 percent from 2.5 percent, in part because of the jobs report.
“The October jobs report suggests that labor market conditions are improving,” Morgan Stanley economists David Greenlaw and Ted Wieseman said in a note to clients. “We believe this reflects a transition from a productivity-led recovery to a modest expansion that is sustained by job and income growth.”
The underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- was little changed at 17 percent after 17.1 percent in the prior month, today’s report showed. The number of people unemployed for 27 weeks or more increased as a percentage of all jobless, to 41.8 percent.
The number of temporary workers increased 34,900. Payrolls at temporary-help agencies often slow as companies seeing a steady increase in demand take on permanent staff.
Today’s report was the first this year in which changes in temporary government staffing for the decennial census played almost no role. About 6,000 workers remained on the federal payroll as the population count wound down during the September employment survey week, down from a peak of 586,000 in May.
One reason why hiring isn’t increasing even more is the economy’s inability to sustain the recovery’s early pace of growth. Gross domestic product expanded at an average 1.9 percent annual rate in the six months ended in September, compared with 4.4 percent in the previous two quarters.
Growth in the 2.5 percent to 2.8 percent range is consistent with keeping the jobless rate stable, according to the Fed’s long-term forecasts.
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