(MoneyWatch) The economy added 204,000 jobs in October, confounding forecasters who had expected lastto damage the labor market.
The U.S. Labor Department said that the unemployment rate edged up to 7.3 percent, from 7.2 percent; that is because hundreds of thousands of federal employees were furloughed during the 16-day fiscal standoff in Congress. They have returned to work, and experts say any lingering impact of the shutdown should fade quickly.
In another boost for the economy, the government said that job growth was stronger in the previous two months that initially estimated. The economy added an average of 202,000 jobs from August through October, up significantly from 148,000 jobs added on average from May through July. Job growth was strongest among restaurants and bars, retailers, manufacturers, health care firms, and professional and technical services companies. Federal government employment continued to decrease.
"The economy continues to be resilient," U.S. Labor Secretary Tom Perez said in an interview with CBS News to discuss the latest job numbers.
He also called on Congress to set aside partisan differences and support economic growth. "The economy should be growing and could be growing by even greater amounts," Perez said. "We need to have our foot on the accelerator right now and get our foot off of the break."
Jim O'Sullivan, chief U.S. economist with High Frequency Economics, said in a research note that "the message from payrolls was clearly much more positive than expected."
The acceleration in job growth could encourage the Federal Reserve to start scaling back its $85 billion a month bond purchase program, which is aimed at holding down interest rates and boosting economic activity. Many investors expected the central bank to delay "tapering" until as late as the middle of next year. But the improved jobs picture could cause markets to sag by reviving speculation that the Fed will begin withdrawing stimulus at its December meeting.
"The much bigger than expected 204,000 gain in [October's] non-farm payrolls, combined with a 60,000 upward revision to the gains in the two preceding months will mostly definitely shift expectations of when the Fed will begin to taper its asset purchases," said Paul Ashworth, chief U.S. economist with Capital Economics, in a note to clients.
The spike in jobs comes as a major surprise, with the labor market growing fitfully this year as the economy searched for traction. In September, the, while in July non-farm payrolls grew by an anemic 89,000. Before today's labor figures were released, the economy had added an average of 177,000 jobs a month.
Although that has helped lower unemployment, at that rate it would still take years for the labor market to bounce back to its levels before the 2008 financial crisis devastated the economy. The jobless rate also has declined largely because many discouraged people having stopped looking for work. Such workers are not counted in the government's headline unemployment figure.
More than 700,000 workers left the labor force in October, according to the Labor Department. Although most of those workers were furloughed federal employees who have since returned to work, roughly 250,000 of that total were people exiting the work force for other reasons.
The stronger than expected labor numbers are somewhat at odds with other economic signals. The U.S. Commerce Department said Thursday that theannual rate from July through September, the best quarterly performance so far this year.
Yet the GDP snapshot overstates the strength of the economy -- experts said in attributing the stronger than expected increase largely to businesses re-stocking their shelves. Such a rapid build-up in inventory typically isn't sustainable month after month, suggesting that the boost could be temporary.
A better measure of underlying economic strength is real final sales, which factors out the contribution of inventories. Final sales grew only 2 percent in the quarter, well below the level required to drive hiring.
For the rest of the year, one source of concern for the economy is slowing consumption by U.S. families, which accounts for nearly 70 percent of economic activity. Consumer spending in the third quarter rose only 1.5 percent, while businesses also held back in their equipment purchases.
Ian Shepherdson, chief economist with Pantheon Macroeconomics, wrote in a note to clients before the latest jobs data were released that "consumption is too weak to support economic growth at the sort of pace needed to close the output gap, and we see no prospect for any real improvement in the near-term."
Americans are consuming less because household income has grown slowly during the recovery, and. That is sapping people's purchasing power. One consequence of slowing personal consumption: Sales of privately held retailers this year have grown at less than 1 percent, according to SageWorks, a financial research firm.
The slowdown is hitting retailers particularly hard, especially small businesses with less than $5 million in annual sales. That, in turn, discourages hiring.
Things should pick up in the new year, with many economists and Wall Street analysts predicting growth of at least 3 percent for 2014.