A surprisingly powerful surge in hiring pushed unemployment to a six-year low of 5.9 percent in September as the U.S. labor market showed renewed vigor.
The 248,000 gain in payrolls followed a 180,000 increase in August that was bigger than previously estimated, the Labor Department reported in Washington. Revisions boosted the job count by 69,000 over the previous two months. The jobless rate fell from 6.1 percent to the lowest level since July 2008.
“This report was strong across the board,” said Dean Maki, chief U.S. economist at Barclays Plc in New York and the top payrolls forecaster over the past two years, according to data compiled by Bloomberg. “The labor market continues to grow fast enough to keep pushing the unemployment rate down.”
The pickup in hiring shows employers are gaining confidence the expansion in the world’s biggest economy will be sustained, surviving slowdowns in Europe and Asia that have hurt global stock markets. Stagnant wage growth kept the report from being universally upbeat, giving Federal Reserve policy makers reason to be patient in removing monetary stimulus.
“It’s great to have the headline job growth number, but there’s still slack,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama. The wage reading “fits right into how the Fed sees things -- we’re making progress but there’s still a long way to go.”
Stocks rallied, paring a second straight weekly loss in the Standard & Poor’s 500 Index, as the jobs report boosted confidence in the U.S. economy. The S&P 500 rose 1.1 percent to 1,967.9 at the close in New York. The dollar, based on the Bloomberg Dollar Spot Index, climbed to a four-year high.
The median forecast of 100 economists surveyed by Bloomberg projected payrolls would increase by 215,000. Estimates ranged from 155,000 to 265,000 after a previously reported 142,000 advance.
The drop in unemployment was the biggest surprise, exceeding all forecasts. The rate, which is derived from a Labor Department survey of households, was projected to hold at 6.1 percent, according to the Bloomberg survey median. Estimates ranged from 6 percent to 6.2 percent.
Among those recently hired workers is Naveed Siddiqui, who interned at Textron Inc., a manufacturing conglomerate whose brands include Bell Helicopter and Cessna aircraft. When the internship ended last summer, Textron offered Siddiqui, 21, a full-time job after graduation from the University of Maryland. He started in late July.
“It was a big weight lifted off my shoulders,” Siddiqui said. “I could focus on getting set for graduation. There was no really big job hunt.”
One sign of weakness in today’s report was average hourly earnings, which were unchanged in September, the worst reading since April. Pay was up 2 percent over the past 12 months, down from 2.1 percent in August.
“Of 38 pages of numbers, that’s the number that the Fed is going to be focused on the most, that zero for average hourly earnings growth,” said Moody. “It goes to the Fed’s point that there’s still a lot of slack in the labor market.”
The underemployment rate, a gauge that counts the unemployed, workers settling for part-time jobs and people who have given up the search, fell to 11.8 percent in September, or twice as high as the official jobless reading, from 12 percent a month earlier. The gap indicates the headline number continues to understate the amount of slack.
“There are still too many people who want jobs but cannot find them, too many who are working part-time but would prefer full-time work,” Fed Chair Janet Yellen said during a Sept. 17 press conference in Washington after the central bank’s last policy meeting. That “significant underutilization of labor resources” is keeping a lid on wages, she said.
Policy makers in September stuck to their pledge to keep interest rates near zero for a “considerable time” after the Fed stops buying assets. The Fed tapered monthly bond buying to $15 billion in their seventh consecutive $10 billion cut, staying on course to end the purchase program this month.
Drew Brown, 62, is among the underemployed after being let go from her job as a science editor in November 2009. Despite decades of experience and a master’s degree in biological oceanography, jobs in her field were hard to come by. Last summer, she took part-time work as a driver at a car rental lot near Baltimore.
While the work is “pleasant,” she said, “the commute is long and the pay is low.” Brown is still searching for work in environmental biology or microbiology, something that pays a “livable wage.” Until then, she’d like more hours.
The stronger-than-expected increase in hiring last month reflected a pickup at grocery stores, factories and restaurants.
Automakers boosted hiring by 3,300 in September after a 4,500 drop in August that may have reflected the timing of plant shutdowns to retool for the new model year. Employment at food and beverage stores rebounded by 19,500 after a decline in August, when workers walked off the job at a New England grocer.
Vince Newendorp, vice president at Vermeer Corp. in Pella, Iowa, said that business has been “very strong.” That’s prompted the company to keep hiring.
Head count “will be steady or up a bit, going into next year,” Newendorp said, adding that the machine manufacturer is shifting hiring toward jobs that require more technical know-how. “We have created manufacturing jobs that pay more.”
Another report today showed the U.S. trade deficit shrank in August to the lowest level in seven months as exports edged up to a record. The gap decreased 0.5 percent to $40.1 billion, the smallest since January, from $40.3 billion in July, the Commerce Department reported.
The narrowing deficit prompted economists at Barclays PLC in New York to boost their tracking estimate of third-quarter gross domestic product to a 3.3 percent gain at an annualized rate from 2.7 percent.
Also today, another report showed service industries grew in September to cap the strongest quarter of expansion in more than 10 years. While the Institute for Supply Management’s non-manufacturing index fell to 58.6 from the prior month’s 59.6, the third-quarter average was the highest since the first three months of 2004, the Tempe, Arizona-based group said.
The quarterly average for the group’s factory index was the highest since early 2011, a report showed earlier this week.
“We’re seeing continued momentum from the incoming U.S. economic data,” Emily Kolinski Morris, chief economist at Ford Motor Co., said on an Oct. 1 sales call. “Favorable indicators include continued robust manufacturing activity, growth in investment spending, gradually improving employment conditions with modest income growth, and stabilizing and potential modest gains in housing.”
“While there are still shortcomings in the labor market, conditions have continued to improve gradually,” she said.