Jobless Rate Falls to 7.8 Percent

The decline is largest since January 2011 and reflects positive job market growth.

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American businesses added 114,000 jobs in September, a slight increase from August and roughly in line with analysts' expectations. Alongside that modest increase, the jobless rate fell by 0.3 percentage points, to 7.8 percent. That's the largest single-month decline in the rate since January 2011 and brings the rate down below 8 percent one month before the presidential election.

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That 114,000-jobs estimate comes from the establishment survey, which the Labor Department uses to get a picture of employment from employers' point of view. The household survey, however, showed that in September, 873,000 more Americans reported having jobs than in August. By comparison, that figure fell by over 100,000 from July to August. It is this household survey figure that is used to compute the unemployment rate.

Also encouraging were changes to prior months' job reports. July's jobs number was revised up from 141,000 jobs added to 181,000. August's was also bumped up from 96,000 to 142,000.

One less positive trend that helped to bring the jobless rate down was the increase in people employed part time for economic reasons. That figure jumped by 582,000 in September, meaning that many who are newly employed may be working below their wage and skill level.

But as interesting as what helped to move the jobless rate down was what didn't help it. The headline unemployment figure includes the number of people working as a percentage of the labor force—Americans who are either working or looking for work. That means it excludes people who have stopped looking. However, the labor force participation rate edged up this month, from 63.5 percent to 63.6 percent, even while the jobless rate went down.

Healthcare and social assistance, an industry that has been strong throughout the recovery, added nearly 45,000 jobs last month, helping to lead the way on job growth. Professional and business services, as well as finance, each added 13,000 jobs last month. Even a shaky construction industry posted a 5,000-job gain.

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However, job gains did not show up across the board; manufacturing lost 16,000 jobs in September.

"The recovery has been remarkable for the extent to which it has been concentrated among a relatively few industries," says Patrick O'Keefe, director of economic research at J.H. Cohn. He points to healthcare and business and professional services as industries that have reliably added jobs in the recovery.

While a large drop in the jobless rate is something to celebrate, the future is still shaky. Helping to dampen the employment outlook has been the dreaded fiscal cliff of spending cuts and expiring tax cuts due to take effect at the end of the year. The Congressional Budget Office has predicted that going over the cliff could send the nation into a recession next year. Though Congress will likely avert some of the scheduled changes, some employers are holding off on investment and hiring until the outlook becomes clearer.

"Certainly the Congress and the administration could go a long way to help small business optimism and improving hiring by getting some sort of a sustainable budget package passed," says Brad Sorensen, director of market and sector Analysis at the Schwab Center for Financial Research. He says that the fiscal cliff both makes future tax policy uncertain and adds to an already troubling economic outlook that is clouded by broader macroeconomic problems and threats from abroad, like the European debt crisis and a slowing China.

However, he feels that the cliff's effects can easily be overestimated.

"It's still slow economic growth that's really contributing to the slow improvement in the employment picture. The fiscal cliff is having an impact and certainly isn't helping, but blaming the slow recovery on the fiscal cliff is not appropriate," says Sorensen.

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. You can follow her on Twitter or reach her at dkurtzleben@usnews.com.