The US economy shrugged off the government shutdown by adding 204,000 jobs in October, transforming the picture of the world’s largest labour market and increasing the chances of the US Federal Reserve slowing its asset purchases in December.
Jobs growth came in at more than twice analyst expectations of 100,000 while big upward revisions to the August and September readings added a further 60,000 to the total.
“The clear takeaway from the payroll numbers is that, if anything, the economy has picked up momentum recently . . . 180,000 or 190,000 jobs a month is more than enough to keep the unemployment rate trending down,” said Jim O’Sullivan, chief economist at High Frequency Economics.
An apparent slowdown in jobs growth was the main reason the Fed chose not to “taper” asset purchases from $85bn a month in September. But yesterday’s figures pointed to a much stronger autumn labour market and could be enough to meet the Fed’s criteria for the “substantial improvement” needed to scale back bond buying.
While there is a big margin of error in a single month’s figure, if the November data confirms the strength of the labour market – and if Republicans and Democrats reach some kind of budget agreement – there is a high chance of the Fed reducing asset purchases on December 18.
The Fed’s huge bondbuying programme has propped up global stock markets and emerging economies, which could become casualties of a change in policy. The dollar gained and the yield on 10-year Treasury notes jumped 14 basis points to 2.75 per cent as markets priced in the prospect of an earlier taper.
“The increase in jobs exceeded expectations for the right reasons,” said Patrick O’Keefe, director of economic research at CohnReznick, the accountancy firm. He said that the strong jobs growth was consistent with business surveys. “There’s no one-month fluke here.”
The big surprise of the report was the lack of impact from the nearly three-week government shutdown in October.
There was more of a shutdown effect on the separate household survey where the unemployment rate rose slightly from 7.2 to 7.3 per cent. The rise in the unemployment rate was below expectations of 7.5 per cent and the data were so badly scrambled that economists were reluctant to draw many conclusions from this section of the report. The data suggest surveys of business confidence, which have shown companies shrugging off the shutdown, have been an accurate guide to the economy.
But they clash with the feeble pace of income and consumption growth on display in Thursday’s gross domestic product data, which suggested the US recovery was still vulnerable.
“The economy continues to be resilient notwithstanding the self-inflicted wounds from Congress,” Tom Perez, the US secretary of labour, told the Financial Times.