Jobs report: Unemployment rate drops to 7.8 percent

(MoneyWatch) The nation's unemployment rate fell to 7.8 percent in September, the first time it has fallen below 8 percent since February 2009 and raising hopes that the pace of U.S. job-creation is picking up.

The U.S. Department of Labor said today that total nonfarm payroll employment increased by 114,000 in September, lowering unemployment 0.3 percentage points, from 8.1 percent in August. That brought the number of unemployed Americans down by 456,000 last month, to 12.1 million.

After three straight disappointing months, total employment as measured by the government's household survey rose 873,000 in September. The employment-to-population ratio, a closely watched measure of the overall health of the labor market, rose 0.4 percentage points to 58.7 percent, its highest level since May 2010. The number of hours employees on private nonfarm payrolls work per week also ticked up, a sign that the employers may soon plan to boost hiring.

In another positive sign, the Labor Department revised upward the number of jobs created over the previous two months. The economy added 181,000 jobs in July, initially estimated at 141,000, and 142,000 in August, up from 96,000.

The improved performance was evident across several sectors of the economy. Health care, transportation and warehousing, and financial services businesses all added jobs. The manufacturing industry, which had been a bright spot earlier in the year, shed 16,000 jobs amid a broader slowdown in the global economy.

The latest jobs data represents a significant improvement over recent months, when slowing economic growth caused tepid hiring. The economy has added an average of 146,000 jobs a month since January. By comparison, 153,000 jobs a month were created on average in 2011.

Although estimates vary, the economy needs to produce 90,000 to 125,000 jobs per month to match the number of people entering the labor force. Job-creation would have to rise well beyond those numbers to return the economy to full employment.

What has stymied job-creation is no mystery: Stubbornly slack economic demand stemming from the 2008 housing crash. "The problem is that firms remain too cautious to invest, the public sector is under budgetary pressure to reduce capital spending and residential investment is still depressed by the housing bust," said U.K. research firm Capital Economics in a recent report.

Indeed, like the epic financial crisis that preceded it, this is no ordinary meltdown. Despite the improvement in September, it represents the longest period of high joblessness since the Great Depression. And the latest job numbers, while an improvement, are likely more mixed than they appear. Although job-creation as charted by the household survey, which the government uses to calculate the unemployment rate, soared, the Labor Department's so-called establishment survey -- essentially a job count -- showed a less robust economy.

"The jump in employment reported in September was almost certainly a statistical fluke," said economist Dean Baker of the Center for Economic and Policy Research, in a research note, while acknowledging that the jobs data show that unemployment is decreasing. "It is common to have large monthly changes in the employment numbers that are not consistent with other economic data."

The long-term unemployed, or people who have been jobless for at least six months, have been hit particularly hard. Roughly 5 million Americans, or 40 percent of the unemployed, have remained out of work for at least 26 weeks, nearly four times the number of long-term unemployed in December 2007.

The economy also needs nearly 10 million jobs to return where it was before the recession. At the rate of job growth in the first half of the year, that would take more than a decade.

When jobs do return, the economy may not look the same. Most of the jobs created during the U.S. economy's recovery -- 58 percent -- have been in low-wage occupations, including retail sales, food preparation, home health and customer service, according to the National Employment Law Project, a New York advocacy group.

Many new jobs are also temporary, rather than more highly compensated full-time positions. Of that 873,000 gain in total employment last month, nearly 600,000 were for part-time jobs. The number of part-time workers grew to 8.6 million in September, up from 8 million the previous month. Such employees are working part-time because their hours have been reduced or because they haven't found a full-time job.

These employment trends are visible in Americans' stagnant earnings. Recent U.S. Census Bureau data showed that median household incomes declined in 2011 for a third straight year, the longest period following a recession without a wage rebound in the past 45 years.

The latest jobs data bears that out. Although average hourly income for all private workers rose 7 cents in September, to $23.58, over the past 12 months those earnings have increased only 1.8 percent, the Labor Department reported.

With growth faltering, the Federal Reserve in September announced a third round of bond purchases aimed at lowering long-term interest rates and stimulating economic activity. But experts, including Federal Reserve Chairman Ben Bernanke himself, agree that monetary policy is losing force. That puts a premium on fiscal policy, which will have to wait until the outcome of the November presidential election.

Whoever wins will face a challenge that, without concerted policy action, could bog the next administration down for years. In part, that's because of the bitter partisanship in Washington impeding proposals aimed at energizing demand and boosting job growth. But it also simply indicates the depth of a crisis that would be hard to crack even in an era of political amity.

"I'm not sure there's a great, one-size-fits-all Washington policy for reducing unemployment," said Greg Acs, director of the Income and Benefits Policy Center at the Urban Institute, a Washington think-tank. "One thing that could help are initiatives at the local level that bring employers and community colleges together to develop programs and curricula to get local workforces up to speed with the skills employers want. To whatever extent the federal government could incentivize that type of cooperation could help quite a bit over the long term."

Editor's note: CBS MoneyWatch initially published an Associated Press story on the jobs report, which we have since replaced with this staff-written article. You can find the initial AP report and reader comments here.

  • Alain Sherter On Twitter»

    Alain Sherter covers business and economic affairs for CBSNews.com.

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