Better-than-expected job creation in October is cause for relief, but not celebration, as the economy remains on track for slower growth.
“Enjoy it, but don’t get used to it, it won’t last,” says Richard Moody, chief economist of Mission Residential, referring to a report that the economy created 166,000 net new jobs in September, the fastest pace of job growth since late spring. The Labor Department also said the unemployment rate held firm at 4.7 percent.
But the job gain, twice as large as analysts had predicted, looks a bit less rosy on closer inspection. The goods-producing sector of the economy is under stress. Manufacturers shed 21,000 jobs during the month, while the construction industry lost 5,000 positions.
Retailers lost 22,000 positions, partly due to the plummeting housing market, as sales at building supply stores and garden centers lagged. Moody’s Economy.com estimates that about 420,000 housing-related jobs have been lost since the housing slowdown began.
Hourly wages for production and non-supervisory workers rose 0.2 percent to $17.58, seasonally adjusted. Hourly earnings have increased 3.8 percent in the past 12 months, with weekly earnings up 3.5 percent. That’s not as fast as workers might want, but also not at a pace that’s so fast it would make the Federal Reserve worry wage inflation.
Finding Balance
“We muddle along,” says John Silvia of Wachovia. “There’s an equilibrium or balance here to the labor market, but at a fairly slow trend in terms of employment growth … we’re avoiding a recession by the skin of our teeth.”
The Commerce Department said that the economy expanded at a brisk 3.9 percent annual pace in third quarter. Private economists and the Federal Reserve predict growth will decline into 2008, largely due to the imploding housing sector.
Stephen Stanley of RBS Greenwich Capital notes that private payroll growth was rising at an average rate of 168,000 per month last year, but had fallen to 114,000 in the first half of 2007, and to just 88,000 in the past four months.
