America gets back to work

Guardian ^ | 11/10/03 | Charlotte Denny

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America's labour market has roared back to life, creating twice as many jobs as expected last month, government figures showed yesterday, prompting speculation that the US federal reserve could call a halt to its policy of rock bottom interest rates. Firms hired more workers than they sacked for the third month in a row in September, adding 126,000 employees to their payrolls, according to labour department figures.

Investors on both sides of the Atlantic cheered the news. In the City, the FTSE 100 index of leading shares closed up 52.7 points or 1.2% higher, while on Wall Street a surge at the opening bell was later trimmed by profit taking. In mid day trading, the Dow Jones industrial average was up 5.34, or 0.1%.

Workers were taken on by firms across a broad swath of the business landscape, including technical services, temporary employment firms, health care, social work, education and retail. Only the manufacturing sector continued to shed jobs, cutting 24,000 workers off its payrolls.

"We can finally put the nail in the coffin of the jobless recovery," said Ken Mayland, president of ClearView Economics. "We are back on a rising job track."

Unemployment fell to 6%, from 6.1% in September, the lowest level since April.

The failure of the jobs market to respond to pickup in US growth over the summer had been a concern for the Bush administration, which is pinning its re-election strategy on a strong economy. The jobs market has been the weak link in the robust recovery, which saw the economy expand at its fastest pace for two decades in the last quarter.

With the campaign in Iraq floundering, Democrats had hoped the increased costs of the occupation and the lack of new jobs would be powerful arguments in next year's presidential elections.

"The most likely scenario is, we'll get enough jobs so it won't be the issue Democrats need to oust the president," said Mark Zandi, chief economist at Economy.com.

White House advisers said yesterday the turnaround was the result of the administration's hefty tax cuts. "The labour market has turned the corner," Gregory Mankiw, the chairman of the White House Council of Economic Advisers.

But the strong data could prompt the Federal Reserve to raise interest rates sooner than analysts had been expecting.

"If employment growth continues to accelerate in the coming months, then the first rise in rates is likely to come sooner than our current forecast of early 2005 suggests," said Paul Ashworth, international economist at Capital Economics.

Federal Reserve chairman Alan Greenspan struck an optimistic tone about the employment outlook in a speech to the Securities Industry Association, earlier this week, saying hiring was expected to rebound.

"The odds... do increasingly favour a revival in job creation," Greenspan said.

The service sector added 143,000 new jobs last month, the largest increase in nine months. That included a 33,000 gain in temporary employment services, which have added jobs for the last five months.

Economists say that shows companies still remain a bit hesitant about the strength of the recovery and are waiting to take on the increased costs of hiring new workers.

"In the short run, they are hiring temporary workers," Mr Mayland said.

"It is creating a pent-up demand for hiring. I think the rebound is sustainable and as we build up a track record, more hiring will follow."