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Employment grew weakly in October

The economy added just 56,000 jobs in October, the government said Friday in a report that reflected sluggish hiring even beyond areas directly affected by hurricanes Katrina and Rita.
/ Source: msnbc.com

The economy added just 56,000 jobs in October, the government said Friday in a report that reflected sluggish hiring even beyond areas directly affected by hurricanes Katrina and Rita.

But the nation’s unemployment rate dropped back to 5 percent — about where it was before Katrina hit. And economists said the disappointing report would not deter the Federal Reserve from continuing to raise interest rates to ensure the economy — and inflation — do not overheat.

The monthly report was a mixed bag, and analysts — who on average had expected growth of about 125,000 jobs — cautioned against reading too much into the relatively weak October figures, partly because of the disruption from the storms.

“There is a lot of noise in the data, and it’s very hard to interpret what is going on,” said Nariman Behravesh, chief economist for Global Insight. “We probably won’t get a clear picture until we see the November and December numbers.”

While the employment figures were slightly disappointing, other data in the report  showed surprisingly strong wage gains for workers who do have jobs. Average hourly wages rose 0.5 percent from September, the biggest monthly increase in more than two years. The average workweek rose as well, with factory workers putting in an average 41 hours a week, up from 40.6.

“Total wage income has accelerated smartly,” said Neal Soss, chief economist at Credit Suisse First Boston. “That is creating lots of cash flow.”

That could be good news for retailers, who are bracing for a tough holiday season as consumers face sharply higher heating bills on top of rising costs to fill their gas tanks.

Although hourly wages are up only 3 percent over last year’s level, the one-month bump could be an unwelcome sign for Fed Chairman Alan Greenspan and his colleagues, who have identified inflation as a significant economic threat.

Greenspan warned Thursday that consumers might be “quite surprised” by the heating bills they receive this winter. And Fed Vice Chairman Roger Ferguson, in a separate appearance, hammered home the message that the central bank has its sights set squarely on squelching any possibility of runaway prices.

“Given the persistence of high energy prices that the global economy has confronted of late, policy-makers cannot be complacent,” Ferguson said. Central bankers stay credible only by “actively leaning against inflationary pressures long before inflation itself builds,” he said.

Certainly for the Fed right now, they are under a credibility test,” said Ethan Harris, chief U.S. economist of Lehman Bros. “They are trying to make it very clear they will resist. Their inflation antennae are up.”

The Fed boosted short-term interest rates by a quarter-percentage point this week, acting for the 12th time in 16 months to keep a lid on inflation. Most analysts think the Fed will push up rates at least three more times — the last two scheduled meeting of Greenspan’s 18-year tenure and the first of his presumed successor Ben Bernanke.

John Silvia, chief economist for Wachovia Securities, said he expects the economy to slow slightly next year in response to the higher rates, a cooldown in the housing market and the aging business cycle. Employers probably will add about 175,000 jobs a month next year, he said, down slightly from the average 190,000 in 2004 and the first half of this year.

“If they can get the past the hurricane impact and they do get more moderate employment growth, I think (the Fed) will be happy with that,” he said. “Any perception that the economy might be slowing down just a touch is fine. … The economy always slows down at this point in the business cycle.”

Bureau of Labor Statistics Commissioner Kathleen Utgoff said the October weakness did not appear directly related to Katrina and Rita.

“Rather, job growth in the remainder of the country appeared to be below trend in October, she said.

The latest figures did not reflect the impact of Hurricane Wilma, which swept through southern Florida last month after the employment surveys were conducted.

In September, the economy shed 8,000 jobs as hiring around the country nearly offset the tens of thousands of jobs lost in the Gulf Coast region due to Katrina. The revised result was better than a previous estimated that showed the economy lost 35,000 jobs in September.

But the Labor Department also revised August figures sharply downward, showing the economy added only 148,000 jobs that month instead of the 211,000 previously reported.

Unemployment insurance figures indicate that more than 500,000 jobs were lost due to the three hurricanes, although those losses have been more than offset by job creation over the past two months.

“The economy has weathered these storms about as gracefully as could be expected," said Mark Zandi of Economy.com.