After seven straight months of cutting payrolls, the nation’s businesses began hiring again in September, adding 57,000 new jobs and fueling hope that the surging economy might be gaining momentum. The report, which was better than expected, sparked a strong rally on the stock market as investors welcomed what one analyst called “the missing piece of the economic puzzle.”
Although more Americans were drawing a paycheck last month, the unemployment rate remained unchanged at 6.1 percent, and some analysts said they saw persistent signs of weakness in the labor market. On average, it takes well over 100,000 new jobs each month just to absorb the growing population and new job-seekers, but the fact that the economy added jobs for the first time since January supported the view of bullish analysts and investors.
Stock prices shot up at the opening bell, although the rally faded somewhat late in the day. The Dow Jones industrial gained 84.51 points or 0.9 percent to close at 9,572. Bond prices fell sharply, sending market interest rates higher.
“After seven months of minus signs, we’ve become desensitized, so this was a positive psychological shock, to see a plus sign in front of an employment number,” said David Rosenberg, chief North American economist for Merrill Lynch. “Is it an inflection point? It remains to be seen. There are still plenty of signs of softness in the labor market.”
For example, consumer confidence fell sharply in September, partly because Americans say jobs are getting harder to find. New claims for unemployment insurance have stabilized but at a level that indicates a lack of job growth.
The economy technically has been expanding since the end of an eight-month recession in November 2001, but the nation’s payrolls have shed more than 1 million jobs since then, posing a major political challenge to President Bush as he ramps up his re-election campaign.
Speaking in Milwaukee shortly after the employment report was released, Bush said his efforts to spur a healthier economy are starting to take hold.
“One of the reasons I’m optimistic about the future of our economy is because of our entrepreneurial spirit,” Bush said in a speech before a fund-raising luncheon Friday. “The tax relief plan puts more capital in the pockets of the small business owners — which means somebody is more likely to find a job.”
The massive federal tax cut Bush signed into law this year, along with some of the lowest interest rates in nearly 50 years, helped fuel strong growth in the third quarter, but the lack of new jobs has sparked questions about whether demand can be sustained into the new year.
“The employment picture has been the missing piece of the economic puzzle for the bulls, so any sign that the tide may be turning on the employment side will give the bulls much more ammunition and force prices higher, as you’re seeing today,” said Scott Anderson, senior economist at Wells Fargo. “It’s an encouraging sign, but I wouldn’t get too excited about it. I don’t think the general outlook has changed very much. The increase was well within the statistical errors that can occur in the survey.”
In addition to the job gain for September, the Labor Department revised the August payrolls number, showing that only 41,000 jobs were lost, rather than the 93,000 originally reported. Employers added 33,000 temporary positions in September, seen as an important leading indicator that could reflect future plans for permanent hiring.
The manufacturing sector shed 29,000 jobs, the smallest total since July 2002. But the beleaguered sector now has lost jobs for a record 37 straight months, so “it is not clear that this represents a reversal of trend,” said Jared Bernstein, senior economist with the labor-affiliated Economic Policy Institute.
John Silvia, chief economist for Wachovia Securities, said the positive employment number is more consistent with other signs of growing economic strength, including a survey this week indicating that manufacturing output has expanded for three straight months.
But he cautioned that with manufacturers finding ways to boost productivity at home and ship work overseas, the economy is unlikely to return to the pace of the late 1990s, when it added an average of more than 250,000 jobs every month.
“People with more marginal attachment to the workforce are probably going to stay outside it,” he said. That means retail sales gains likely will remain “more limited” than in past recoveries.
The number of jobless people looking for work for 27 weeks or more rose to 2.1 million last month, and there were nearly 5 million people working part time because they couldn’t find full-time work, the Labor Department said.
Also buried in the report was a notice that the payroll number for March 2003 will be revised sharply downward next year, when more complete figures are tabulated. The so-called benchmark revision figure indicates that the labor market might have been even weaker than previously reported when a comprehensive revision is published next February.
Financial markets, however, were eager to respond to the positive “headline” numbers in the report.
“Finally, the job market is responding to the strong domestic demand of the last six months,” said economist Jay Feldman of Credit Suisse First Boston. He said strong results from the factory sector, including an increase in total hours worked, indicate a “powerful inventory cycle is under way.”
Feldman and other analysts are counting on retailers, wholesalers and manufacturers to expand their inventories from current low levels, which would provide a powerful boost to economic growth.
Amid signs of an economic rebound, the Federal Reserve last month decided to hold a key short-term interest rate at a 45-year low of 1 percent. Analysts think policy-makers will leave that rate unchanged again when they next meet, on Oct. 28.
The ten Democrats vying to challenge Bush in 2004 have latched onto the economy as a campaign issue, criticizing the administration for tax cuts they say have benefited the wealthy and failed to improve the lives of ordinary Americans. Many critics point out that Bush is likely to be the first president since Herbert Hoover to preside over an economy that lost jobs during his four-year term, and the modest job gains in September did nothing to change that picture.
One of the Democratic candidates, U.S. Rep. Dennis Kucinich, said the unemployment number is still “incredibly high” and blamed “the Bush administration’s failed policy of repeatedly awarding tax cuts to the rich.”
The Associated Press contributed to this report.