October surprise: Job gains soar to 204,000

Paul Davidson | USA TODAY

The U.S. economy added a surprising 204,000 jobs in October despite a federal government shutdown that was expected to limit payroll growth.

The unemployment rate, which was expected to be more significantly impacted by the shutdown, rose to 7.3% from 7.2%, the Labor Department said Friday.

A survey of economists by Action Economics had estimated that 122,000 jobs were added last month.

Businesses added 212,000 jobs. Federal, state and local governments cut 8,000. The gains were broad-based and led by growth in leisure and hospitality, retail and professional and business services.

Job gains for August and September were revised up by a total 60,000. August's gains were revised to 238,000 from 193,000 and September's to 163,000 from 148,000.

About 450,000 federal workers were furloughed during the entire Oct 1-16 shutdown, but were counted as employed because they received back pay. Payrolls, though, were expected to be reduced by private-sector workers temporarily laid off because of the shutdown, including federal contract workers and employees of restaurants and tourist attractions near federal locations.

The Labor Department, however, said there were "no discernible impacts" of the shutdown on the survey of employers that determined the number of job gains. But in a separate survey of households, 448,000 more workers — some of them furloughed government workers — were reported as being on temporary layoff, pushing up the unemployment rate.

"I think it shows that the economic recovery is becoming more resilient to these sorts of uncertainty shocks" as the private sector strengthens, says James Marple, senior economist of TD Economics.

Marple added that the encouraging report increases the chances that the Federal Reserve next month will begin to taper its monthly bond purchases, which are intended to hold down long-term interest rates. After the shutdown and several weak economic reports, many economists had pushed back their estimates for initial tapering to next year.

Other barometers of the labor market were mixed. The number of Americans out of work at least six months fell by 83,000 to 4.1 million, though they still represent 36% of all those unemployed.

The average workweek was unchanged at 34.4 hours. Employers often increase the hours of existing workers before adding new ones. And average hourly earnings rose 2 cents to $24.10.

A broader gauge of joblessness called the underemployment rate rose to 13.8% from 13.6%. It includes part-time workers who prefer full-time jobs and those who've stopped looking for work, as well as the unemployed.

Leisure and hospitality led job gains with 53,000. Retailers and professional business services each added 44,000. And manufacturing added 19,000, its strongest showing since February, underscoring that the effects of federal spending cuts and weak overseas economies may be easing.

Many economists expect job growth to pick up next year as the impact of the budget cuts continues to ebb and the private sector gains momentum on an expanding housing recovery and consumers who have shed debt.