By John W. Schoen Senior Producer
updated 11/5/2010 12:09:16 PM ET 2010-11-05T16:09:16

After a long stretch of subpar job growth, businesses may finally be getting back in a hiring mood.

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The better-than-expected showing from Friday’s employment report for October was a welcome sign for job seekers and policymakers in the White House, Congress and the Federal Reserve.

Businesses added a better-than-expected 151,000 jobs to their payrolls last month, the first monthly increase since May. That fell short of the 200,000 or so needed to keep up with the growth of the work force and start rehiring the 15 million unemployed Americans sidelined in the worst recession in 80 years. The unemployment rate remained stuck at 9.6 percent.

Story: U.S. economy added 151,000 jobs in October

"To bring unemployment down to 9.2 percent in a year's time, this economy is going to have to grow at about 4 percent. And right now it's growing at almost half that pace," said John Ryding, chief economist at RDQ economics.

A pickup in hiring typically lags the end of a recession because employers want to see sustained growth before committing to take on workers. That’s one reason there have been strong gains in hiring of temporary workers in recent months.

In October, the average number of hours worked continued the upward trend that began a year ago. If that trend continues, those extra hours eventually turn into fulltime jobs.

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The pent-up demand for new hires can also be seen in the steady rise of productivity gains, as employers continue to squeeze more work out of the same number of employees. In the third quarter, productivity rose at a 2.5 percent annual rate. Those gains have slowed in recent quarters, suggesting that it will be harder to keep boosting output without hiring new workers.

“The economy is doing better," said Robert Brusca, chief economist at FAO Economics. "The retail sales sector is starting to pick up. There's evidence from surveys that small businesses are less negative than they've been since the start of this recovery. … America is a pro-growth place. We're about to turn a corner on job growth. “

Some sectors are faring better than others. Though private employers added 159,000 jobs, the government sector lost another 8,000 jobs in October. Deep cuts in state and local budgets have forced layoffs of some 460,000 workers since April 2009. Wide budget gaps are expected to continue to force deep cuts by state and local governments for at least the next two years. Strong support for federal budget cuts in the midterm elections could expand layoffs to federal workers.

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Fed's bond buying spree
To try to boost economic growth and spur more hiring, policymakers at the Federal Reserve this week announced a widely anticipated move to buy back another $600 billion of government bonds — adding to a stockpile of $1.25 trillion worth of bonds taken on since the financial panic of 2008.

The Fed is hoping that by soaking up more government debt, and replacing it with cash, the cost of borrowing will fall further and businesses and households will be more inclined to spend, boosting economic growth.

That could be a stretch, according to David Rosenberg, chief economist at Gluskin Sheff, given the deep problems in housing, with some one in seven mortgage holders either "in arrears or in the foreclosure process, and an estimated 25 percent of homeowners are ‘upside down’ in their mortgage," owing more than their house is worth, he wrote in a research note to clients.

Rosenberg figures the Fed’s move will add between a quarter- and half-point to GDP, while pushing the Fed’s balance sheet to “a Japanese-style 20 percent of GDP.”

Part of the problem is that despite the central bank’s efforts to flood the system with cash  much of it is sitting in swollen corporate balance sheets and in bank vaults at the Fed.

"There's a trillion dollars of excess reserves already at the banks waiting to be lent and they're not lending it,” said David Malpass, president of Encima Capital. “Putting more money (into the banking system) just weakens the dollar.”

The Fed’s unprecedented bond-buying spree also raised concerns about its eventual exit strategy from a monetary policy that’s never been tried before in the U.S. At some point, central bankers will have to begin selling off the Fed's bloated portfolio of bonds, which would lead to tighter credit. It’s far from clear how the Fed will gauge the timing of those bond sales.

"At some point it's going to be very dangerous,” said Andrew Busch, a currency strategist at BMO Capital Markets. "The flip side of the question is, ‘What happens when the Fed wants to tighten?’ That's the unknown that we have now. With so many levers to pull and so many things to do, at some point they're going to make a mistake.”

Uncertainty surrounding key government economic policies has also weighed on the job market; business leaders have complained that they are reluctant to hire more workers until the costs of health care reform and the direction of tax policy become clearer.

Tuesday's midterm election, which gave control of the House to Republican opponents of health care reform and supporters of extending tax cuts, has intensified that debate. President Barack Obama signaled this week he is open to compromise on a tax policy standoff that forced the debate into a post-election lame duck session set to begin Nov. 15. The Bush administration’s tax cuts expire at the end of this year.

“If we nail down the tax code quickly, that's been a real impediment for small business hires,” said Mark Zandi, chief economist at Moody's Analytics. “If we get some of the blanks filled in for health care reform, which is making small businesses nervous as well, then as we work our way into next year, we'll see measurably better job growth.”

The hope is that more clarity about government policy, and more evidence the economy is growing, albeit weakly, will help change hiring managers' expectations about the future and give them more confidence to begin hiring again.

“The economy is growing,” said Brusca. “The Fed is doing what it can do to ramp up expectations. It eliminated from its last statement all the negative forward-looking comments that had been there. The Fed realizes that it is expectations that they need to move forward. … I think you have to embrace the numbers, and they are good. We're building on something here.”

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Video: Obama discusses jobs report

  1. Closed captioning of: Obama discusses jobs report

    >> we are in the middle of a tough fight to got our economy growing faster, so that businesses across our country can open and expand, so that people can find good jobs and so that we can repair the terrible damage that was done by the worse recession in our lifetimes. today we sooreceived some encouraging news. based on today's jobs report we've now seen private sector job growth for ten straight months. that means that since january the private sector has added 1.1 million jobs. let me repeat, over the course of the last several months we've seen over a million jobs added to the american economy . in october, the private sector has added 159,000 jobs. and we learned that businesses added more than 100,000 jobs in both august and september, as well. so we've now seen four months of private sector job growth above 100,000, which is the first time we've seen this kind of increase in over four years. now, that's not good enough. the unemployment rate is still unacceptably high and we've got a lot of work to do. this recession caused a great deal of hardship and put millions of people out of work. so in order to repair this damage, in order to create the jobs to meet the large need, we need to accelerate our economic growth to is a we are producing jobs at a faster pace. because the fact is, an encouraging jobs report doesn't make a difference if you're still one of the millions of people who are looking for work. and i won't be satisfied until everybody who is looking for a job can find one. so we've got to keep fighting for every job, for every new business, for every opportunity to get this economy moving. and just as we passed a small business jobs bill based on ideas of both parties and the private sector , i am open to any idea, any proposal, any way we can get the economy growing faster so the people who need work can find it faster. this includes tax breaks for small businesses like deferring taxes on new equipment so they they've got an incentive to expand and hire as well as tax cuts to make it cheaper for entrepreneurs to start economying. th the this includes building new infrastructure, from high speed trains to high speed internet so the companies can run faster and smarter. creating incentives in growth sectors like the clean energy economy. certainly includes keeping tax rates low for middle class families and extending unemployment families who are hardest hit by the downturn while generating more demand in the economy. it's also absolutely clear that one of the keys to creating jobs is to open markets to american goods made by american workers. our prosperity depends not just on consuming things but also on being the maker of things. in fact, for every $1 billion we increase in exports thousands of jobs are supposed forred here at home. that's why i've set of goal of doubling american exports over the next five years and that's why on the trip that i'm about to take i'm going to be talking about opening up additional markets in places like india, so that american businesses can sell more products abroad in order to create more jobs here at home. this is a reminder as well that the most important competition that we face will not be between democrats and republicans. it's the competition with countries around the world to lead the global economy . and our success or failure in this race will depend on whether we can come together as a nation. our future depends on putting politics aside to solve problems, to worry about the next generation instead of the next election. we can't spend the next two years mired in gridlock. other countries, like china, aren't standing still , so we can't stand still either. we've got to move forward. i'm confident if we can do that, if we can work together, then this country will not only recover but it will prosper. and i'm looking very much forward to helping to pry some markets open and help american businesses and put some people back to work here at home during the course of this trip.


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