Surprisingly Strong October Job Growth

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CBS/AP
Employers boosted payrolls by a surprisingly strong 166,000 in October, the most in five months, an encouraging sign that the nation's employment climate is holding up relatively well against the strains of a housing collapse and credit crunch.

The Labor Department's report, released Friday, also showed that the unemployment rate held steady at 4.7 percent for the second month in a row. It's a figure that is considered low by historical standards.

Job gains were logged for professional and business services, education and health care, leisure and hospitality, and for the government. Those employment increases more than offset jobs losses in manufacturing, construction and retail - casualties of the problems plaguing the housing market.

The latest report on employment conditions around the country was better than economists were anticipating. Economists were forecasting payrolls to grow in October by about half the pace seen - around 80,000. They did correctly predict the unemployment rate would be unchanged.

"Businesses have not clammed up on the hiring scene as some feared," said Ken Mayland, president of ClearView Economics. "The wheels aren't coming off the economy."

But on Wall Street, the good employment news failed to ease fears among skittish investors. The Dow Jones industrials were off around 49 points in morning trading. One day earlier, the Dow plunged more than 360 points underscoring the fragile state of financial markets.

President Bush pointed to the pickup in job creation in October as evidence that his economic policies work. "This is now our 50th consecutive month of uninterrupted job growth, the longest in the nation's history," he said.

In other economic news, orders placed to U.S. factories edged up 0.2 percent in September, an improvement compared with the 3.5 percent drop registered in August, the Commerce Department said in a second report. The manufacturing news was better than the 0.4 percent decline analysts were expecting.

On the employment front, even with October's solid gain in payrolls, the trend this year has been toward softer job growth. And, that is beginning to show up in wages.

Average hourly earnings rose to $17.58 in October, a modest 0.2 percent increase from September. Economists were forecasting a slightly larger, 0.3 percent increase. Over the past 12 months, wages were up 3.8 percent.

Still, economists said the wage gains should be sufficient to support consumer spending and keep the economic expansion - which began in late 2001 - intact. A faltering job market could crimp wage growth. That could lessen people's appetite to spend, spelling trouble for the economy.

The state of the nation's employment climate is a crucial factor determining whether the economy will, in fact, weather the financial storm. So far, decent job creation and wage growth have helped to offset some of the negative forces hitting some individuals from the housing slump, weaker home values and harder-to-get credit.

"Resiliency is the word," Commerce Secretary Carlos Gutierrez said when asked what the latest employment figures say about the economy's performance. "It suggests to me that businesses see growth continuing," he said in an interview with The Associated Press. "There is nothing out there that would suggest we can't absorb the housing correction," he added.

To be sure, problems challenging the economy are hitting some industries and workers hard. The construction industry cut 5,000 jobs, factories slashed 21,000 positions and retailers eliminated nearly 22,000 in October.

But strength in hiring elsewhere blunted those losses. Professional and business services added 65,000 jobs, education and health care industries expanded employment by 43,000. Leisure and hospitality added 56,000 positions and the government boosted payrolls by 36,000.

The economy, which grew at a brisk 3.9 percent annual rate in the third quarter, is expected to slow to about half that pace or less in the current October-to-December quarter. The toll of the housing collapse and credit crunch are expected to catch up to consumers and chill their spending.

"The pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction," Federal Reserve policymakers said Wednesday as they decided to lower their key interest rate again.

The Fed sliced its key rate by one-quarter percentage point to 4.50 percent to protect the economy from undue economic weakness in the months ahead. It was the second rate reduction in six weeks. At the same time, the Fed hinted that it may not need to cut rates again for a while.

As economic growth slows, the unemployment rate probably will creep up to around 5 percent by the end of this year or early next year, economists say.

Many analysts believe the country will be able to avoid a recession but they warn that the odds of one occurring have grown since the beginning of this year.

Complicating the outlook and the Fed's job: surging energy prices. Oil prices have hit record highs in recent days and are hovering past $95 a barrel.

If high oil prices boost the costs of many other goods and services, inflation can spread through the economy. High energy prices also can cause people and businesses to cut back on other types of spending, putting another damper on economic growth.