U.S. Economy: Employment Growth Exceeded Forecasts in October

By Joe Richter


Nov. 2 (Bloomberg) -- American employers added almost twice as many jobs as forecast in October, helping steer the economy clear of recession even as the housing slump deepens.

The addition of 166,000 workers to payrolls after a 96,000 increase in September gives the Federal Reserve less reason to cut interest rates again next month, economists said. The report today by the Labor Department in Washington also showed that the unemployment rate remained at 4.7 percent.

``This report will increase the Fed's conviction that it should keep rates unchanged in coming months,'' said Dean Maki, chief U.S. economist at Barclays Capital in New York and a former senior economist at the Fed. ``The labor market continues to be inconsistent with fear of a recession.''

Stocks rose after the report, before retreating as concerns lingered that banks would face growing credit-market losses resulting from the worst housing downturn in 16 years. Builders and factories eliminated jobs, the Labor Department said, while service industries such as restaurants and hotels increased hiring, as did the government.

``In coming months, employment growth will slow, but it doesn't look like it's falling off a cliff,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts.

Gault's team predicted payrolls would expand by 120,000, the third-highest forecast among 86 economists surveyed by Bloomberg News. The median forecast was for a gain of 85,000.

Estimates for unemployment ranged from 4.6 percent to 4.9 percent. The rate dropped to 4.4 percent in March, matching the October 2006 level as the lowest in five years.

Factory Payrolls Shrink

Manufacturing payrolls decreased by 21,000 after falling 17,000 a month earlier. Economists had predicted a drop of 15,000 in manufacturing employment.

Auburn Hills, Michigan-based Chrysler LLC yesterday said it will cut as many as 11,000 more hourly and salaried jobs through next year. The third-largest U.S.-based automaker said the prospects for auto sales have deteriorated since announcing in February that it would cut 13,000 positions over three years.

``We have to move now to adjust the way our company looks and acts to reflect a smaller market,'' President Tom LaSorda said in the statement.

Payrolls at builders fell by 5,000 after dropping 14,000 a month earlier. Service industries, which include banks, insurance companies, restaurants and retailers, added 190,000 workers last month after gaining 127,000 jobs in September. Retailers cut 21,500 positions.

Government payrolls expanded by 36,000 during the month after rising 23,000 in September.

Wage Increases

Treasury notes rose, reversing earlier declines, following the jobs report. The yield on the benchmark 10-year note declined to 4.29 percent at 10:18 a.m. in New York, from 4.34 percent late yesterday. The Dow Jones Industrial Average dropped 0.6 percent to 13,488.11. The dollar weakened against the euro.

Wages rose less than forecast, suggesting compensation may provide less of a cushion against declining home values in coming months. Hourly wages rose 3 cents, or 0.2 percent, on average to $17.58 in October and were up 3.8 percent from a year earlier. Economists had expected a 0.3 percent increase for the month and 4.0 percent for the 12-month period.

Average weekly hours worked by production workers held at 33.8. Average weekly earnings rose to $594.20 last month from $593.19 the prior month.

In contrast to the payrolls figures, a separate household survey showed a loss of jobs. The unemployment rate held steady because about 200,000 people left the workforce.

Fed Stance

Fed policy makers on Oct. 31 cut the interest-rate target for loans between banks by a quarter percentage point to 4.50 percent after trimming the rate by a half point in September.

Officials also said that while ``strains in financial markets have eased somewhat,'' economic growth will probably slow as the housing slump intensifies.

``It's pretty clear that, outside of housing, the economy is still pretty healthy,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``The economy has been shrugging off these bad housing numbers, but if we look forward, there may be some softer data.''

The economy will probably expand at a 1.8 percent pace this quarter, based on a Bloomberg survey of economists last month, less than half the third quarter's 3.9 percent rate.

Economists project the jobless rate will rise in coming months as slower growth forces more businesses to reduce staff. Unemployment will probably increase to 5 percent by the second half of next year, the survey showed.

Not all companies are worried demand will slacken. Honda Motor Co. said last month it may double North American production of its compact CR-V, the best-selling sport-utility vehicle in the U.S. Honda began building CR-Vs in East Liberty, Ohio, late last year after previously importing them from Japan and the U.K.