September Jobs Report a Pleasant Surprise

Employment grew more than expected in September.

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The September jobs report was a pleasant surprise, if only by the current abysmal standards for job growth. In September, U.S. nonfarm payrolls beat expectations, adding 103,000 jobs, while the unemployment rate remained at 9.1 percent. August's job totals were also revised upward, from the previous estimate of zero to 57,000 jobs.

While those figures are perhaps a welcome glimmer of hope, the report also carried with it many troubling factors. First, 45,000 of September's new jobs came from the end of a strike by Verizon workers—jobs that already existed. In addition, the average duration of workers' unemployment increased, to 40.5 weeks. And the economy needs to add considerably more than 103,000 jobs each month to even keep pace with population growth.

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The so-called "real" unemployment rate—which takes into account discouraged workers, others marginally attached to the labor force, and the underemployed—rose 0.3 percentage points last month, from 16.2 to 16.5 percent. The data suggest that the number of people employed part-time for economic reasons grew last month.

"It wouldn't be correct to characterize it as a strong report in absolute terms, but it is better than anticipated," summarizes Nigel Gault, chief U.S. economist for IHS Global Insight.

Broken down by industry, the numbers show the continuation of several broad trends. The private sector continued to grow, adding 137,000 jobs, while government remained weak, subtracting 34,000 positions. The healthcare and social assistance industry continues to drive job growth, with nearly 41,000 jobs added last month. Professional and business services also remain strong, growing by 48,000 new jobs.

Goods-producing industries meanwhile showed uneven growth. Manufacturing lost 13,000 jobs, its second straight month of losses. Meanwhile, the soft construction industry was surprisingly strong, adding 26,000 jobs.

Perhaps the best way to describe the September jobs numbers is "marginally positive." "[O]ne thing that [the jobs report] does do is it sort of diminishes the probability that we are heading into a double-dip recession that will have an impact on capital markets," says Dave Roda, regional chief investment officer for the Southeast at Wells Fargo Private Bank. But that doesn't mean a strong or secure recovery. He adds, "We believe [unemployment is] going to come down at a very slow rate. Obviously there's risk to our economic forecast. We have budgetary issues which create confidence issues, which could affect borrowing rates, which could affect the economy."

The September jobs report comes as the president continues a strong push for his American Jobs Act, unveiled last month before a joint session of Congress. Republican lawmakers have taken issue with several aspects of that bill. Depending on what measures a deeply divided Congress takes to help the economy, the precarious jobs situation could turn south.

Gault believes that extensions to the payroll tax cut and emergency unemployment benefits, which are both currently set to expire at the end of the year, might survive Congress. If so, he says, the economy will remain in its current slow-growth state. If those proposals do not pass, he says, unemployment will rise, and the country will see even more contraction in the economy. Roda adds that if Congress does nothing, there could be the possibility of another ratings agency downgrade of the country's debt.

The White House used this month's tepid figures as further reason for lawmakers to adopt Obama's jobs plan. Katharine Abraham, a member of the Council of Economic Advisors, said in a statement that the September unemployment report "underscores the President's call for Congress to pass the American Jobs Act."

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Meanwhile, Republicans responded to the report in order to push their own economic proposals and attack the president. "We need to recognize that this administration is holding the economy back," said Rep. Kevin Brady, vice chairman of the Joint Economic Committee, in a statement. "High taxes, excessive spending and regulations, and uncertainty about the increasingly intrusive federal government are killing any chance to get the economy moving."