The number of jobs created was twice as many as expected – bringing unemployment down to 6%.
It was the clearest sign yet that years of swelling jobless queues may be over as businesses get caught up in an economy which shot to a 19-year record growth rate of 7.2% in the third quarter, spurred by the temporary boost of President George Bush’s $350 billion tax cut package.
But the increases were little over the minimum 100,000 required for the workforce to keep up with a rising population, fuelled by immigration, and Wall Street offered a lukewarm reaction to the news, closing down on Friday.
Many economists met the news with joy, however, proclaiming the recovery to be well under way.
“We have lift off,” said Naroff Economic Advisors president Joel Naroff. “So much for the continuing dirge that we are in a jobless recovery.”
Out of the trough
Firms also took on 125,000 workers in September, far more than first estimated, when the unemployment rate was 6.1%. That brought the total for the past two months to more than a quarter of a million.
Employers appeared to have squeezed the last drop out of existing workers, pushing up productivity, or output per hour, to an 18-month record pace of 8.1% in the third quarter.
“Wage growth is still far short of what is needed to sustain the recent pace of consumer spending”
Now, earlier than predicted by economists, rising demand was forcing companies – who had axed about 2.4 million jobs since 2001 – to accept new entrants.
“We had been expecting at some stage to see some decent pickup in job creation and now we are finally starting to see it,” said BMO Financial Group senior economist Rick Egelton.
“The real mystery was how was the economy growing so quickly while jobs were continuing to decline.”
Wall Street, however, sold off after the report, with the Dow Jones index of 30 top stocks losing 0.48%, as investors looked ahead and fretted over possible rate hikes. Analysts said much of the strong economic news had already been priced into shares.
David Rosenberg of Merrill Lynch said he believes the red-hot pace of growth will fade, although he still sees growth of some 3.8% for 2004.
“We think that the ‘softer side’ of the economy will become more apparent in the coming months,” he said, noting that temporary measures such as tax rebates have pushed up economic activity.
“Consumers recently have gotten a substantial lift from funds freed up through mortgage refinancings and the tax cuts, and they have spent a higher-than-normal portion of the income as well … wage growth is still far short of what is needed to sustain the recent pace of consumer spending.”
“The economy’s growing; new jobs are being created; and there’s an opportunity, I hope you seize it”
Despite the surge in job production, employment remains well below 2001 levels.
“By no means are the current job numbers especially impressive,” noted The New York Times. “The government says that 130.13 million Americans were employed in October, fewer than the number working in February of this year and down 1.8% — or 2.4 million jobs — from the peak of 132.56 million registered in February 2001.”
Of around 8.8 million people who were counted as jobless in October, nearly two million were blacks, whose unemployment rate of 11.5% was almost twice the national average of 6%. And 1.4 million were Latinos, whose 7.2% rate was also disproportionately high. Whites fared better, with just 5.1% out of work.
Bush said the report offered hope for jobless Americans.
“We can’t make people dream, but we can help people once they start to dream,” Bush remarked during a campaign swing through North Carolina.
“There’s hope for you,” Bush assured his country’s unemployed. “The economy’s growing; new jobs are being created; and there’s an opportunity, I hope you seize it.”
The Bush administration has taken credit for fuelling the third quarter economic growth spurt with a Jobs and Growth Act – the tax cut package designed to fatten people’s wallets.
With presidential elections approaching in November 2004, the news on jobs is likely to bring some relief to Bush, whose promise of jobs for all who want them is the key plank of his economic policy.