What the Jobs Report Really Says About the Economy

The government's monthly jobs report almost always generates heated debate, but it usually requires a closer check beneath the hood to determine what the numbers really mean.

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Rarely has that been truer than the September nonfarm payrolls report released Friday, which on its face showed a huge leap in the number of working Americans and a drop in the unemployment rateto 7.8 percent, but which simultaneously masked some weaker fundamentals.

(Read more: What the Numbers Mean)

The conflicting signals consequently sparked a fierce debate about the state of the labor market, featuring an animated online battle over the very legitimacy of the numbers themselves.

"I don't think this is a game-changing report," said Lee Ferridge, head of macro strategy for North America at State Street Global Markets. "We saw a big rise in the employed in the household survey which caused that big drop in the unemployment rate. A lot of people will look for that to unwind in the next month or two."

On the plus side, the payrolls reportshowed 873,000 more jobs and 418,000 more Americans in the labor force — which had been drowning at 31-year lows — in addition to that headline-grabbing fall in the jobless rate to its lowest level since Barack Obama became president in 2009.

But the underlying details told a less buoyant story: The closely watched U-6 rate, which takes into account the underemployed and those who have quit looking for work, held at 14.7 percent. Had the participation rate not dropped as much as it has over the past three years, the more-publicized U-3 unemployment rate actually would be 9.8 percent, according to University of Maryland economist Peter Morici.

At the same time, the number of unemployed for 27 weeks or more fell below 5 million for the first time since July 2009. But the average duration of joblessness rose to 39.8 weeks, its highest since June and still near the all-time peak of 40.9 weeks set in November 2011.

Perhaps most telling of all, the number of part-time workers soared by 582,000.

"The employment picture didn’t really change all that much with the September report but there were enough shifts in enough pieces to suggest the glass can be viewed as half full rather than half empty," said Steve Blitz, chief economist at ITG Investment Research in New York. "Things look better at the moment but none of this is to suggest all is well."

The monthly numbers on the first Friday — "jobs Friday" — are important for the obvious reason to gauge how Americans are doing economically, and somewhat less obviously to try to gauge public policy response.

If the numbers are really as good as the headlines indicate, that could suggest the Federal Reserve was a little quick to fire off its third round of quantitative easing last month.

The program entails the central bank creating money that it then uses to buy mortgage-backed securities, with the ultimate intent to put more cash in consumers' pockets that will drive demand and in turn spur more hiring. QE carries risks, most notably in terms of inflation, so the Fed needs to be sure conditions warrant such drastic action.

Most experts agree, though, that the jobs report will not cause pangs of regret from Fed Chairman Ben Bernanke, who said easing will continue even after the economy starts showing improvement.

"Clearly the Fed has a more open eye on their employment mandate than they do on their inflation mandate. But it begs the question: What happens if both of their mandates start to send a message that this unbelievably excessive easing is no longer appropriate?" said Liz Ann Sonders, chief investment strategist at Charles Schwab in San Francisco.

"I don't think we're there yet," she added. "But if this trend continues and inflation starts to pick up a little bit, then you have to wonder about the 2015 time frame and open-ended QE."

And then there's the question of whether we can believe any of it.

Jack Welch, the outspoken former CEO at General Electric ," ignited a storm on microblogging site Twitter when he tweeted, "Unbelievable jobs numbers...these Chicago guys will do anything...can't debate so change numbers." (Click here for reaction to Welch)

Labor Secretary Hilda Solisbristled, telling CNBC, that she was "insulted" by the suggestion.

The prevailing sentiment, however, is that one month does not a recovery — or a recession — make.

"The Fed wants much stronger growth to consistently bring down the unemployment rate," Ferridge, of State Street, said. "We're not there. But we're not about to see the U.S. economy dive full-tilt into recession, either."

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