US Economy Continues to Show Tepid Job Growth
Economists expect to see that 95,000 jobs were added to the U.S. economy in October as local governments continued to let go of workers and companies remained reluctant to take on new hires in an uncertain environment.
Economists expect there were about 125,000 jobs added by the private sector as government workers were laid off to satisfy tight state and municipal budgets. They expect the unemployment rate to stay at 9.1 percent when the October employment report is released at 8:30 a.m. ET Friday.
"I think businesses are nervous. You get to this point in the business cycle, and it's businesses that are supposed to take the leap of faith that drives jobs," said Mark Zandi, chief economist at Moody's Economy.com.
"You can get some sectors where the demand is so strong, it doesn't matter. They're going to hire, but they're not going to hire with a lot of gusto," he said. "They need some clarity. They need a defining event that tells them the coast is clear." That inflection point, he said, could be the U.S. presidential election next year.
Zandi expects to see a total of 100,000 new payrolls in October, with 125,000 coming from the private sector. The Bureau of Labor Statistics reported a total 103,000 jobs for September, but 45,000 of those reflected striking Verizon workers returning to work. Just 57,000 workers were added in August.
One relatively bright note is that the weekly jobless claimsfell to 397,000 last week, marking the first time they've fallen below 400,000 in five weeks — a possible sign of a more stable job market. Also on Thursday, the employment component of the ISM nonmanufacturing sectorsurvey was reported at its highest level since June, with a reading of 53.3. The number shows an increase in hiring intent by service-sector companies.
The Federal Reservepainted a bleak picture of employment in its outlook this week, forecasting that unemployment will stay elevated at least through 2014. "They extended it out another year," Diane Swonk, chief U.S. economist at Mesirow said, adding that the Fed will may now keep rates on hold beyond its previous date of 2013. The Fed forecast an unemployment rate no lower than 8.5 to 8.7 percent by the end of 2012, and a rate of 6.8 percent to 7.7 percent to the end of 2014.
Swonk expects to see a total addition of 75,000 new jobs in October, a number that is held down by public sector layoffs and lackluster small business hirings.
Small business workforces are basically at a standstill, according to data from the National Federation of Independent Businesses. On Thursday, the NFIB reported that its October survey showed that business owners overall reported a reduction in employment for the fifth month in a row, with an average reduction of 0.1 worker per firm.
Of the 2077 businesses in the survey, 77 percent made no net change in hiring, while 12 percent added an average 3.2 workers over the past few months, and 11 percent reduced employment by an average of 3.6 workers. "I think small businesses are under pressure because in part they are in tough sectors. They're in construction, financial service, like mortgage brokers and retailing. They're under more pressure cyclically. Getting equity capital is still hard. It's a problem for startups," Zandi said.
Goldman Sachs economists also forecast that just 75,000 new nonfarm payrolls were added in October. "There are some areas where we have jobs going up — mainly in certain service sectors, professional services and areas like that ... medical would be another category where I would expect to have growth," said Goldman economist Andrew Tilton.
"Leisure and hospitality and health care, we would expect at least some modest job growth," said Tilton.
Banks and financial firms have been shaving workers, but Zandi said the job cuts are localized to cities, like New York and Charlotte, N.C., where Bank of America has workers. "We're talking tens of thousands of jobs, not hundreds of thousands. In the case of Bank of America, where its the most notable, it's 30,000 jobs over two years. I think it's meaningful, but in the data it might not even be measurable," he said.
Zandi said he expects travel and leisure hiring to pick up, as airline bookings in the holiday season appear solid. He said seasonal retail hiring could be a wildcard and would be one area that may show an unexpected improvement in October.
"What the retailers do is going to be very important for what kind of jobs numbers we're going to get in the next three months. It will show up more in November or December, but to some degree that might be a positive," in October, he said.
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