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Policy: Budgets & Deficits

US job growth defies shutdown expectations: 204k jobs added in October, unemployment up to 7.3%

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Jobs,Labor,Debt Ceiling,PennAve,Joseph Lawler,Economy,Budgets and Deficits,Government Shutdown,Spending

The U.S. gained 204,000 jobs in October, the Labor Department announced friday, as the unemployment rate ticked up to 7.3 percent in a jobs report tainted by the government shutdown.

The October unemployment rate was slightly inflated by the government shutdown, the Bureau of Labor Statistics warned ahead of the release. The household survey used to calculate the unemployment rate counted the thousands of government workers furloughed during the government shutdown as unemployed, even though they were slated to receive back pay for the time they missed.

Forecasters had expected just 120,000 new jobs, warning that the shutdown hindered the government's data-collection process, meaning that the jobs report likely overstates the labor market's weakness in October.

Other indicators, however, such as output and manufacturing reports for the month, have hinted at resilience in the broader U.S. economy, despite the uncertainty caused by Washington fights over funding the government and raising the debt ceiling.

Data from the establishment survey, based on responses from businesses, also showed few effects of the government shutdown.

Revisions to September and August payrolls totaled 60,000, meaning that growth in those months was slightly stronger than previously thought.

The length of the average workweek held steady at 34.4 hours, suggesting that any hourly reductions on the part of federal contractors were limited. Hourly wages rose by 2 cents to $24.10.

Private-sector non-farm payrolls accounted for more than all of the growth in October. Employers added 212,000 positions, even as government jobs contracted by 8,000, led by 12,000 fewer jobs at the federal level.

With the revisions to the previous three months, monthly jobs gains have averaged over 201,000 in the past three months. That is higher than the pace of net job creation for the past 12 months, which is now 194,000.

Private-sector analysts have said that the foregone government spending in October could reduce gross domestic product by 0.2 to 0.6 percent in the quarter, with most of that damage being reversed in the next quarter, as government salaries and spending return to normal. White House economic advisers estimated that, apart from the direct effects of lowered government spending, the damage to consumer confidence and other disruptions caused by the political showdown over government funding and raising the debt ceiling in October could cost 120,000 private-sector jobs in the month. The U.S., however, has avoided major damage in past episodes revolving around shutdowns or the debt limit.

Friday's report includes the most significant data yet on the impact of October's fiscal battles, even though problems collecting that data have made its interpretation more difficult.

Officials at the Federal Reserve have said that they will monitor the impact of fiscal policy in making a decision about the ongoing monthly bond-buying program. The next meeting of the Fed's monetary policy committee will be Dec. 17 and 18. Most analysts expect the central bank to keep its $85 billion in monthly Treasury and mortgage-backed securities purchases unchanged through next spring, but some Fed officials, such as St. Louis Fed President James Bullard, have said that favorable incoming economic data could mean a small reduction in the size of the purchases in December.

Broader measures of unemployment in the household survey data showed weakness in October. For instance, the U-6 unemployment rate, which takes into account workers pushed into part-time work, ticked up to 13.8 percent in October from 13.6 percent in September.

The household survey also showed the labor force participation rate declining from 63.2 percent to 62.8 percent, the lowest number in decades. Overall employment shrank by 735,000, and the employment-to-population ratio fell by three-tenths of a percentage point.

But the household survey data was affected by the counting issues created by the shutdown.

"All the household survey numbers (employment, participation, etc) are affected by the shutdown. Not possible to strip it out, so ignore all," wrote Pantheon Macroeconomics economist Ian Shepherdson on twitter.

One major factor in the lost jobs reported by the household survey was temporary layoffs. That number increased by 448,000, a nearly 50 percent jump that is likely attributable to the furloughs for government workers during the shutdown.

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