September's jobs report was bad. October's could be worse.
The U.S. economy sputtered toward creating just 148,000 jobs last month. And that was before the government shutdown and debt ceiling fight.
This morning, the Labor Department reported that the economy added just 148,000 new jobs in September, once again missing expectations and marking yet another month of barely-there economic recovery.
August's numbers were revised up to 193,000 from 169,000, while July's sluggish numbers were revised down to 89,000 from 104,000, the slowest rise since June 2012. The trend line does not look good.
On the positive side, the unemployment rate scooted down from 7.3 percent in August to 7.2 percent in September. That's the lowest jobless rate since November 2008. And unlike recent months, "the unemployment rate declines seems genuine, rather than labor force dropout-driven," says The Wall Street Journal's Steven Russolillo. Past monthly unemployment rate declines have been attributed to large numbers of people giving up on looking for work entirely — and thus not being counted as part of the potential workforce. But that wasn't the case in September.
Still, the unemployment numbers — the release of which were delayed because of the government shutdown — aren't particularly good. And adding to the unease is the fact that the numbers don't account for a tumultuous October in Washington. This report does not reflect any adverse economic effects of the 16-day government shutdown, which put hundreds of thousands of government workers on furlough, and the concurrent debt ceiling fight, which may have rattled the already fragile economy. Any damage from October's drama, which "caused consumer confidence to plummet," won't be apparent until next month's numbers are released, says The New York Times.
Economists say October's events may also warp the data the Federal Reserve uses to decide when to start "tapering" — or winding down the easy money stimulus plan in which it buys $85 billion in Treasuries and mortgage-backed securities each month to keep interest rates down and stimulate the economy. Earlier this year, Fed Chairman Ben Bernanke said the central bank would begin tapering later in the year if the economy kept improving in line with the Fed's predictions. That now looks unlikely. The Wall Street Journal:
Remember that 7 percent unemployment target for the Fed. Well, just a few months ago, Fed Chairman Bernanke told us that the FOMC expected that by the time we get down there, the Fed would likely have ended its tapering and monthly bond-buying would stand at zero.
Now, with just two percentage points to go for that threshold and the market betting on the Fed staying on hold until March, that instruction is looking a bit confusing. [The Wall Street Journal]
Some analysts are also blaming the sequester — automatic, across-the-board spending cuts that took effect in March — for the weak economy. Here's Neil Irwin at the Washington Post:
Perhaps the best evidence for federal spending cuts as the culprit behind weak growth is this: It's the only culprit left standing when you consider the other possibilities. Financial markets have been on a tear, and business and consumer confidence has been strong this year (at least until the October shutdown). Consumers have made major progress reducing their debt burdens. The housing market has stabilized, and is no longer a drag on the economy. One possible alternate explanation for the sluggishness is a rise in interest rates that has happened since May, when the Fed started signaling that tapering could be near, but generally it takes more than a few months for the impact of higher interest rates to translate into slower job creation.
In other words, there's every reason to think this should have been a good year for the American economy. Yet here we are back in the doldrums, experiencing the same ambling pace of recovery that has been all too common since the technical end of the Great Recession in the summer of 2009. Americans can probably look to Washington to assign blame — and that's before the tumultuous last few weeks exact whatever toll they will exact on growth. [Washington Post]
But before you throw up your hands in despair, consider this potential economic bright side: The coming holiday season could boost hiring and spending. Shobhana Chandra at Bloomberg explains:
Faster hiring that leads to bigger gains in wages would help to accelerate consumer spending, which accounts for about 70 percent of the economy. Even as the debate on fiscal policy heated up last month, retailers began announcing plans to add workers for the holiday-shopping season. [Bloomberg]
In the meantime, stay tuned for the October jobs report. It will surely offer plenty of insights on just how much the shutdown and debt ceiling fight hurt the economy.