Payrolls Beat Forecasts as U.S. Weathers Shutdown: Economy

American employers added more workers to payrolls in October than economists projected as the world’s largest economy powered through the federal government shutdown.

The gain of 204,000 workers topped the most optimistic forecast in a survey of economists and followed a 163,000 increase in September that was larger than initially estimated, Labor Department figures showed today in Washington. The jobless rate rose to 7.3 percent from an almost five-year low.

“The government shutdown really didn’t have a material impact on employment,” said Brian Jones, senior U.S. economist at Societe Generale in New York, whose forecast for a payroll gain of 175,000 was the highest in the Bloomberg survey. “The labor market is actually quite healthy, regardless of what people may think. The economy is doing better.”

The figures indicate employers were increasing hiring to meet greater demand as they looked past the 16-day budget impasse and a debate over raising the nation’s debt ceiling. Speculation that the report will prompt the Federal Reserve to accelerate a withdrawal of stimulus caused Treasuries to sink the most in three months, gold to slide and the dollar to strengthen.

The yield on 10-year Treasuries jumped 15 basis points to 2.75 percent at 4:03 p.m. in New York. Gold futures dropped 1.6 percent to $1,287.70 an ounce. The Standard & Poor’s 500 Index rose 1.3 percent, the most in three weeks. The dollar climbed 0.4 percent against the euro.

Economists’ Estimates

The median forecast of 91 economists surveyed by Bloomberg called for a gain of 120,000 jobs, with estimates ranging from increases of 50,000 to 175,000. The report, delayed by the shutdown, was originally slated for Nov. 1.

The difference between today’s outcome on payrolls and the average estimate of economists surveyed by Bloomberg was 3.4 times larger than the poll’s standard deviation, or the average divergence between what each economist forecast and the mean. That was the biggest surprise since April.

The partial government shutdown soured consumer moods, even as job prospects brightened, a survey indicated today. The Thomson Reuters/University of Michigan preliminary consumer sentiment index for November dropped to 72, the weakest since December 2011, from 73.2 in October.

Payrolls increased at manufacturers by the most since February, retailers added about twice as many workers as the month before, and leisure and hospitality employment was the strongest in six months.

Broad-based Gains

The wide-ranging nature of the increase was reflected in the report’s diffusion index, which measures the breadth of private industries hiring. It climbed last month to the highest level since February.

Among those finding work was Blair Landen, 22, who was hired in October after her one-month internship at rehabilitation-product maker Saebo Inc.

She had been looking for positions since the spring, before her graduation from the University of North Carolina at Chapel Hill. When applying and interviewing for jobs yielded little, she started networking, creating a spreadsheet with about 70 contacts that eventually helped her find her current position.

“It was a very frustrating process,” said Landen, who now lives in Charlotte. “When you talk to 10 people, you might have one person who has a lead on a company that’s hiring right now - - maybe. It’s kind of like a never-ending cycle.”

Holiday Hiring

Retailers boosting hiring ahead of the holiday shopping season include Inc. The world’s largest online retailer is creating more than 70,000 full-time seasonal jobs and expects to convert “thousands” of those positions to permanent roles after the season ends as it did in 2012, according to a statement.

United Parcel Service, Inc., the world’s biggest package shipping company, is hiring 55,000 seasonal employees to handle an 8 percent increase in peak season daily volume, according to an Oct. 25 statement. The employees will work as drivers, helpers, package sorters, loaders or unloaders to help with demand during the most compressed holiday season since 2002, Atlanta-based UPS said.

“The outlook for the economy suddenly brightened today,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in a note. “The labor market has considerable momentum and to ask whether it is sustainable is just not the right question.”

Fed Policy

Fed policy makers said last week they needed to see more evidence the economy will continue to improve before they trim $85 billion in monthly purchases of Treasury and mortgage debt. Fiscal policy “is restraining economic growth,” the Federal Open Market Committee said Oct. 30 at the end of a two-day meeting in Washington.

Economists surveyed before that meeting said they didn’t see the Fed starting to reduce purchases until March, according to the median of 40 responses. The next gathering of the FOMC is in December.

“We know that the Federal Reserve is interested in scaling back the quantitative easing program,” said Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. “The data we received today doesn’t compel them to do that, but it certainly doesn’t prevent them. The door is open for a decision to scale back the program in December.”

The unemployment rate, derived from a separate Labor Department survey of households, was forecast to rise to 7.3 percent from September’s 7.2 percent, according to the Bloomberg survey median.

Furloughed Workers

As many as 800,000 federal workers were furloughed during last month’s government shutdown. The Labor Department, in its survey of 60,000 households, extrapolated the effects of the impasse to arrive at the unemployment rate.

Americans who weren’t working during the week spanning Oct. 6 to Oct. 12 were counted as unemployed, even if they were paid or expected to get paid retroactively, according to the Bureau of Labor Statistics. The accuracy of the October household survey may have been affected by a one-week delay in data collection and respondents’ confusion over their employment status because of the shutdown.

The household survey also showed that the participation rate, which measures the share of working-age people in the labor force, decreased to 62.8 percent, the lowest since March 1978, from 63.2 percent.

“You really want to see how the job market does in November before making any assessments about the underlying health of the job market,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who correctly projected the rise in the unemployment rate to 7.3 percent. “There are a lot of things pushing and pulling on the October numbers.”

Manufacturing Employment

Factories added 19,000 workers in October, according to the survey of employers. Industries adding factory jobs in October ranged from motor vehicles and fabricated metals to furniture and food processing.

Private employment rose 212,000 in October, exceeding the 125,000 gain forecast by economists and the 150,000 increase in September. Government employment decreased by 8,000 last month as federal agencies cut payrolls.

Workers at America’s top federal contractors were also among those affected by the lapse in appropriations. Lockheed Martin Corp., which had $36.9 billion in government contracts in 2012, put 2,400 workers on leave the second week of October.

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