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Pre-Election Jobs Report Shows Some Gain; Rate 7.9%

American job creation improved in October with 171,000 new jobs but the unemployment rate moved higher to 7.9 percent, setting the stage for a final push to the finish line in the heated presidential campaign.

Eddie Seal | Bloomberg | Getty Images

Economists had been expecting the report to show a net of 125,000 new jobs and a steadying of the unemployment rate at 7.8 percent. Nomura Securities predicted the rate would fall to 7.7 percent, but most expected no change.

Most of the job creation came in the services sector, with a gain of 150,000, while government employment rolls saw a collective decrease of 13,000, according to the report from the Bureau of Labor Statistics.

"The labor market continued to improve in October, generating 171,000 new jobs, providing a needed boost to recovering consumer sentiment and bolstering optimism for the upcoming holiday season," said Ken Goldstein, economist at The Conference Board.

Markets initially reacted positively to the report, with stock market indexes opening slightly higher, but the averages turned lower a half-hour into trading. Bond prices fell also, sending the yield on the 10-year Treasury note to 1.75 percent.

A broader measure of unemployment that includes discouraged workers and those employed part-time who would rather work full-time ticked lower to 14.6 percent. (Read More: US Planned Layoffs Jump to a 5-Month High)

The labor force participation rate, a key metric that measures those working or looking for jobs, edged higher to 63.8 percent after wallowing around 31-year lows for the past several months. The total level of employment jumped by 410,000.

But unemployment for blacks showed the highest increase in the survey, surging to 14.3 percent from 13.4 percent.

Also, the average duration of unemployment climbed to a 2012 high of 40.2 weeks. The average work week and earnings both showed little change.

Taken comprehensively, the report was better than expected but still representative of tepid growth that is doing little to generate escape velocity for the slow-moving economy.

"You're still seeing that gap of a relay race in the economy where the consumer's feeling a little bit better...but the corporate sector is not as strong," Diane Swonk, economist at Mesirow Financial in Chicago, told CNBC. "They're not hiring out like crazy, but certainly you've got to welcome these kinds of numbers."

The report comes at a sensitive time with the presidential election looming Tuesday and the economy and specifically the jobs situation at the forefront. (Read More: What About an Election 'Cliff'? Here's What Could Happen)

President Barack Obama has touted the more than 4 million jobs created since the 2009 economic nadir, though the number is much lower — less than 200,000 — when compared to the jobs lost.

"This report is sure to be spun politically by both sides," said Paul Ashworth, chief U.S. economist at Capital Economics. "The bottom line is that the labor market remains unusually weak, but whether it is weak enough to prevent Obama getting re-elected is anyone's guess."

Republican challenger Mitt Romney has pointed out that job creation has been slow and well behind the pace of previous recoveries.

"Today's increase in the unemployment rate is a sad reminder that the economy is at a virtual standstill," the former Massachusetts governor said in a statement.

The unemployment rate is 0.1 percentage points higher than when Obama took office. Obama would be bucking history if he does get a second term, as he would have the highest jobless rate for a re-elected president since Franklin Delano Roosevelt.

"The fundamentals are strong," said Arne L. Kalleberg, sociology professor at the University of North Carolina and author of the book Good Jobs, Bad Jobs. "I do foresee the cyclical aspects of the unemployment situation being rectified.

"What's more problematic for me is the structural sense of things, in that we have created an economy where we have a lot of polarization. There's a hollowing out of the middle, and that is not going to change when the business cycle turns around."

Friday's report comes a month after the Labor Department reported a drop in the unemployment rate below 8 percent that virtually no economists saw coming.

There were 114,000 new jobs initially reported in September, but that number was revised up to 148,000 Friday. August's numbers also were revised higher, from 142,000 to 192,000.

The September rate drop prompted criticism and charges that the government was manipulating the data to boost Obama's election fortunes.

"Overall the report is an encouraging one and for now we have to be satisfied with a significant above-consensus reading and a strong upwards net revision set against the backdrop of a tougher position for those out of work," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York.

Obama and Romney stand in a virtual dead-heat, according to the latest polls.

"We're moving in the right direction. What we need to do is build on this progress and that's been the president's goal all along," said Alan Krueger, chairman of Obama's Council of Economic Advisors.

Employment for the year has averaged 157,000 per month, marginally higher than in 2011.

Job gains came mostly in professional and business services, which collectively added 51,000 new positions, while health care contributed 31,000. Retail gained 36,000, primarily due to increased employment at auto dealers.

There were 28,000 new leisure and hospitality jobs, a sector that has provided much of the growth since the mild jobs recovery.

Manufacturing showed little gain while mining lost 9,000 jobs and construction edged higher.