The Labor Department’s report of a 103,000 rise in payroll jobs in September along with a flat 9.1% unemployment rate exceeded analysts’ expectations and lifted the stock market on Friday morning before prices started to drop in midafternoon trading.
The increase in employment partially reflected the return to payrolls of about 45,000 Verizon telecommunications workers who had been on strike in August, according to the U.S. Bureau of Labor Statistics report. In addition, job gains were seen in professional and business services, healthcare and construction. However, government employment continued to trend down.
“The number of unemployed persons, at 14.0 million, was essentially unchanged in September, and the unemployment rate was 9.1%. Since April, the rate has held in a narrow range from 9.0% to 9.2%, the bureau reported.
Stocks were higher in midmorning trading but back down again by midafternoon, with the Dow Jones industrial average down 34 points, 0.31% lower, at 11,089. The S&P 500 was down 11 points, 0.93% lower, at 1,153, and the 10-year Treasury bond was yielding 2.081%.
Analysts said the Friday jobs report suggests the U.S. economy is continuing its long, slogging upward climb—provided that market sentiment doesn’t drag it down to recession level.
Disconnect Between Sentiment and Economic Activity
“The jobs report was pretty good,” said Burt White, chief investment officer for LPL Financial, Boston, in a phone interview immediately following the jobs release. “We lost 8.5 million jobs in the recession and we’ve added 2 million back since March 2009. Clearly, a long runway is needed for job growth to improve, but relative to a market that is increasingly pricing in a near-done-deal recession, these are pretty good numbers that should take some air out of the recessionary balloon.”
White pointed to a disconnect between consumer sentiment and economic activity. Consumers and investors are so fed up with Washington and Wall Street that their lack of belief is fueling the negative sentiment, he said. The danger: that negativity can lead to a recession.
While consumer fears are at an all-time high, retail spending is near the top quartile, with between 4% and 5% growth year-over-year in same-store sale spending, White noted. “Those two things can’t stay different for long. We’re still net 6 million jobs in the hole, which is why the employment rate is 9.1%, but if you look at the growth of jobs since the bottom, we’ve been decreasing the unemployment rate by about 1.3% in the last 18 months, which is normal. We wish it was more, but it’s an average recovery coming out of a recession.”
Steve Blitz, senior economist with ITG Investment Research in New York, wrote in an analyst note that the September data signals an economy that is neither reaccelerating nor shifting into recession.
“Looking into where the job growth was, not counting the returning workers, 50% was in health care, 20% in temporary workers and 15% in retail,” Blitz said. “These are not job categories reflective of a dynamic growing economy or even an economy turning in that direction, unless you consider dynamic growth the care and feeding of aging baby boomers.”
The economy is moving ahead at a 1% to 2% real growth rate, level that is not enough to bring down the level of unemployed, he added. The current job numbers are just enough to keep everyone locked into their respective positions, and the low growth rate makes the U.S. economy especially susceptible to negative growth in Europe and a slowing China, Blitz warned.
Partisan Finger-Pointing in Washington
The response from lawmakers out of Washington amounted to partisan finger-pointing.
Senate Majority Leader Harry Reid, D-Nev., tied the employment report to the need to pass President Barack Obama’s jobs bill, which is scheduled for a vote on Tuesday, while House Speaker John Boehner, R-Ohio, said the nation’s persistently high unemployment rate is far above what the Obama administration had promised with its stimulus plans.
“The jobs growth reported today is stronger than expected but not nearly good enough when millions of Americans remain unemployed, and millions more are struggling to make ends meet,” Reid said in a statement. “On Tuesday, we will vote on President Obama’s jobs bill, which cuts taxes for the middle class and puts Americans back to work building roads, bridges and schools—and pays for these job-creating programs by asking millionaires and billionaires to pay their fair share.”
Boehner, meanwhile, said the “sad numbers” show that government spending, threats of higher taxes on small business and excessive regulation all discourage job creation. “The Democrats running Washington need to stop campaigning, start listening, and start working with Republicans to liberate our struggling economy and remove government barriers to private-sector job growth,” Boehner said in a statement.
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