News > Economy
Payroll numbers grow again
Big gain marks 3rd straight positive month, but job market has room to grow, Fed has time to wait.
November 7, 2003: 5:00 PM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - U.S. payrolls grew in October for the third straight month, the government said Friday, trouncing Wall Street expectations as the labor market accelerated its recovery from its longest slump since World War II.

Though good news for thousands of workers and for President Bush politically, many economists warned job growth was still not fully up to speed, meaning the Federal Reserve could remain on the sidelines, keeping rates low with little fear of inflation.

Unemployment fell to 6.0 from 6.1 percent in September, the Labor Department reported, while payrolls outside the farm sector rose by 126,000 jobs after rising by a revised 125,000 in September.

Economists, on average, expected an unemployment rate of 6.1 percent and payroll growth of 58,000 jobs, according to a Reuters poll.

"Today's employment report is just one month's report, but it's the one we've been waiting for, providing unambiguous good news about the labor market," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

It was the biggest month for job growth since January, when payrolls grew by 158,000 jobs. With significant upward revisions to August and September data, payrolls have grown three straight months, the longest stretch since August through November 2002.

Payrolls at service-producing industries, including retail, education and health care, grew by 143,000 jobs in October. Goods-producing industries shed another 17,000 jobs.

On Wall Street, which may have been expecting a strong number, stocks posted modest declines. Treasury bond prices also fell, driving yields higher, as some traders bet the Federal Reserve may raise short-term interest rates sooner rather than later.

Fed behind the curve?

After cutting their key short-term interest rate to the lowest levels in more than 41 years, Fed policy makers have been sitting on their hands in recent months, saying the economy's recovery wasn't strong enough to create significant job growth or drive inflation higher.

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Labor Secretary Chao speaks about the improving job market's impact on the economy.

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Some observers have become frustrated with the Fed's inaction, suggesting it's out of touch with reality, and their criticism only grew louder after Friday's job report.

"This report is a real dilemma for the manic depressives on the [Fed's policy committee]," said Joel Naroff, president and chief economist at Naroff Economic Advisors. "They may have to admit that with the labor market improving, the economy is in good shape."

Other economists note, however, that job growth is still not strong enough to keep up with the 150,000 or so new entrants to the labor force every month, and few economists expect a significant decline in the unemployment rate in the next year.

"We're not talking about adding 300,000 jobs, which is what you get when things are really going well; we're still a long way from that," said Robert MacIntosh, Fed watcher and chief economist at Eaton Vance Management. "I don't think it's an issue at all from an inflationary standpoint."

Payrolls are still 2.4 million jobs smaller than in March 2001, when the 2001 recession began. Though job growth has come in spurts since then, payrolls are still about 800,000 jobs lower than in November 2001, when the recession officially ended.

Strong, technology-driven growth in productivity, or output per worker hour, has contributed to the jobless nature of the recovery. But a 7.2-percent annualized rate of economic growth in the third quarter, driven by a consumer-spending boom fueled by tax rebate checks and the proceeds of mortgage refinancing, forced production to accelerate even more, finally creating demand for labor.

The politics of jobs

Bush administration officials took credit for Friday's report, saying the tax cuts the White House pushed earlier this year had triggered the burst of job growth.

"Three months of sustained job creation shows that President Bush's agenda is helping our economy grow," said Commerce Secretary Donald Evans.

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Bush's reelection chances will likely benefit if the job gains seen in September and October accelerate into 2004. His father lost a re-election bid in 1992 due to the impression that he was not doing enough to fix an anemic labor market.

But Bush's opponents noted that monthly job growth hasn't yet come close to the rate the White House promised when pushing for tax cuts earlier this year, and it hasn't yet come close to the slower rate of 200,000 per month Treasury Secretary John Snow promised recently.

"Until we can reach and sustain job growth of at least 150,000 every month, there will be growing slack in the job market. And until that happens, we are unlikely to see the kind of healthy wage and income growth that can sustain a strong recovery," said Lee Price, research director at the Economic Policy Institute, a liberal think tank.

Should payrolls be even stronger?

If there was anything disappointing about Friday's report, in fact, it's that job growth hasn't been more robust, given the strength of the economy and the tidal wave of fiscal and monetary stimulus from the government and the Fed.

"To put this in perspective, a couple of years into recovery, we should be seeing 250,000 to 300,000 new jobs per month," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute. "We're not there yet."

Federal Reserve

What's more, the recovery in the labor market has not yet caught up with wages, critical to the strength of consumer spending, which fuels more than two-thirds of the economy. The Labor Department said average hourly wages rose just a penny, or 0.1 percent, to $15.46 from $15.45 in September, when wages were flat.

About 8.8 million people were unemployed in October, the department said, 2 million of whom have been out of work for 27 weeks or longer.

Temporary help services payrolls rose by about 17,000 jobs. Many economists believe this is a hopeful sign, since companies will often hire temps before making permanent hires. Other economists note, however, that temp payrolls have risen several months in a row and suggest some businesses may be using temp workers to avoid paying benefits.

The average work week grew to 33.8 hours from 33.7 in September, indicating businesses increased activity in October. Manufacturing hours were flat at 40.5, and overtime hours were flat at 4.2.  Top of page

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