latimes- - Providing welcome news to Republicans four days before congressional elections, the government reported Friday that jobs grew at a strong pace in the last three months, pushing the unemployment rate to its lowest level in more than five years.
The October jobless rate was 4.4%, down from 4.6% in September and the lowest level since May 2001, President Bush's fourth full month in office.
The economy added only 92,000 jobs in October, fewer than the 125,000-job consensus prediction of private economists and the 150,000 needed to keep pace with workforce growth.
But the Labor Department revised upward its preliminary estimates for August and September employment growth by a combined 139,000 jobs. With that adjustment, the economy gained an average of 157,000 jobs in the last three months, more than enough to accommodate new labor force entrants.
Some analysts said the report added to confusion about the state of the economy, coming only a week after the government reported anemic economic growth in the third quarter. Other economic reports this week also suggested weakness, boosting fears that the economy was slowing more than previously thought.
But Republicans, worried about losing their congressional majorities in Tuesday's elections, pounced on the data as justifying their economic policies, particularly the tax cuts of Bush's first term.
"We couldn't have had better numbers," said Edward Lazear, chairman of Bush's economic advisors council.
Lazear contended that prosperity was reaching all levels of society. "We're not promising this for the future," he said. "It's happening now."
Democrats, however, insisted that the gains were going mostly to upper-income earners.
"Job growth was too modest to allay concerns about whether job opportunities will expand in the coming months," said Sen. Jack Reed (D-R.I.), the top Democrat on the Joint Economic Committee. "Americans are working harder than ever to keep up with rising living expenses."
Recent polls show the electorate divided over the economy. A Wall Street Journal-NBC poll Oct. 28-30 showed 46% approving of Bush's management of the economy and 48% disapproving — a marked change from his 39% approval and 56% disapproval tallies four months earlier.
Some 22% of respondents to the poll named jobs and economic growth as the issues that would most influence their vote.
The bullish job figures, however, weren't enough to spark more bullishness among stock investors. The Dow Jones industrial average fell for the sixth straight trading session — its longest losing streak in more than a year.
The yield on the benchmark 10-year government bond posted its biggest daily increase since July 2005, to 4.72% from 4.60%, as investors reasoned that the strong jobs report reduced the odds of the Federal Reserve cutting interest rates anytime soon.
"It's a little difficult to figure out what's going on," said Brian Bethune, an economist with research firm Global Insight.
Bethune predicted that the unemployment rate would soon rise as more labor force dropouts began looking for work again. He foresaw disappointment for many of them.
"The economy is already holding more jobs than are sustainable," he said. "The slowdown in economic growth was more abrupt than companies can adjust to. The business sector is attempting to catch up."
Economic growth plunged from a vigorous 5.6% in the first quarter of this year to 1.6% in the third quarter. The trends in unemployment usually lag several months behind changes in economic growth.
Contributing to the puzzlement was a divergence between the government's two ways of measuring employment. The reported 92,000-job gain in October was measured using a monthly survey of business payrolls that does not register the self-employed.
The 4.4% unemployment rate, by contrast, was calculated from a separate household survey that includes the self-employed. It tends to be more volatile because it is based on a smaller sample than the payroll survey. The household survey found a huge increase of 437,000 jobs in October — nearly five times the number reported in the business survey.
The jobs report stoked fears that the Fed's next move on interest rates would be to raise them.
"The Fed will not be thinking of rate cuts," said Nigel Gault, a Global Insight economist. "It may even have to hike again."
Ethan Harris, chief U.S. economist for Lehman Bros., predicted one more rate hike early next year to keep inflation in check.
On the other hand, the unemployment rate, far from being a good gauge of future economic activity, usually moves up or down according to economic expansions or contractions of several months earlier, said Ian Shepherdson, chief U.S. economist for High Frequency Economics.
"No big change in the Fed's view will come from this," he said. "They are done."
The Fed's policymaking Federal Open Market Committee had boosted its benchmark short-term interest rate by 0.25 of a percentage point at 17 consecutive meetings from 2004 to last June, raising the rate from 1% to 5.25%. It did not change the rate at its last three meetings, leaving analysts and markets guessing the direction of its next move.
Adding to the possibility of another rate hike, the Labor Department's report showed average hourly earnings of nonsupervisory workers on private payrolls rising by a hefty 0.4% in October for a total increase over the last year of 3.9%, before adjusting for price inflation.
Workers' earnings are still catching up with losses encountered during the 2001 recession and the two years of sluggish growth that followed. But at some point the Fed could begin worrying about the possibility of an inflationary wage-price spiral.
Despite the overall growth in employment, the Labor Department reported that the manufacturing sector lost 39,000 jobs in October and the construction industry, buffeted by a plunge in the housing market, lost 26,000.
The service sector was responsible for the growth. Professional and business services, education and health services and leisure and hospitality all added at least 50,000 jobs in the last two months.