American employers added 204,000 workers to their payrolls in October, despite a partial US government shutdown that created a climate of economic uncertainty for half the month.
The news, better than forecasters expected, brings to the forefront the question of timing for a possible downshift in Federal Reserve monetary stimulus for the economy.
Some Fed policymakers would like to start scaling back an unconventional program of bond purchases, and can now cite evidence of strength in the job market as an argument for a “taper” move in December. Other Fed officials, however, have expressed doubt about whether the job market has regained sufficient strength and are likely to argue for pushing the taper decision into next year.
The newest job figures, released Friday as the Labor Department’s preliminary estimate for October, provided fodder for both camps at the Fed.
Unemployment rose to 7.3 percent of the work force, from 7.2 percent a month earlier.
The diverging stories for October – more jobs but rising a rate of unemployment – stems in good measure from the way the Labor Department takes two surveys of the job market each month. The “payroll” survey of employers counted federal workers who were furloughed in the shutdown as employed, because they had recently gotten a paycheck. The “household” survey of individuals included some 448,000 as unemployed because of “temporary layoff,” which spiked due to the federal furloughs, which ended in the middle of October. That could mean the unemployment rate ticks down again next month as the temporary-layoff count reverses.
But even setting aside the furlough effects, unemployment remains high and many potential job-seekers are still on the sidelines.
The October labor report showed a sizable decline in the number of Americans in the labor force.
"The civilian labor force was down by 720,000 in October," the Labor Department said in releasing its report. Some 62.8 percent of adults are "participating" in the labor force (either looking for work or already employed), down from 63.2 percent a month earlier.
Forecasters took varied positions on whether a Fed taper in December is now likely.
"Together the [job and gross domestic product] data suggest that the US economy continues to expand at a reasonable pace, but that the underlying rate of expansion has cooled since earlier in the year, when policymakers began talking in earnest about scaling back monetary stimulus," Chris Williamson wrote in a report for Markit, a provider of financial market data.
He predicts that the Fed will hold off for a while, perhaps until March, to start scaling back on its $85-billion-per-month program of buying Treasury or mortgage bonds.
Paul Ashworth of Capital Economics says recent "flip-flopping" statements from Fed officials, including Chairman Ben Bernanke, make it hard to know when the policy committee will move. But Mr. Ashworth writes that, "In our opinion, the data would justify the Fed reducing the pace of its asset purchases in December."
The Fed has framed its decision as one that hinges on sufficient strength in economic growth. Starting to withdraw the bond purchases, also known as "quantitative easing" of monetary policy, could be taken as a vote of confidence in the US economic expansion.
But the move could also raise fears that, without such an accommodative Fed, interests rates will edge up in the US and around the world – creating a new headwind for the recovery.
In addition to the welcome strength of job creation in October, the Labor Department revised up its payroll tallies for the prior two months – for a cumulative addition of 60,000 US jobs. The more months when job creation exceeds 200,000, the faster the unemployment rate will fall. So far, that level has been topped three times this year: in February, August, and October.