WASHINGTON—The unemployment rate fell to a five-and-a-half-year low of 4.4 percent in October and the economy added 92,000 jobs, the Labor Department reported Friday, providing Republicans reason to crow just days ahead of Tuesday's congressional elections.
Unemployment was 4.6 percent in September. The new statistics, which also show rising wages, are good news for working Americans, especially given that the strong hiring came amid a slowing economy.
But the numbers come with a downside, too. A tight labor market creates inflationary pressures, and that makes it unlikely that the Federal Reserve will cut interest rates soon to spur an economy being slowed by the nationwide housing slump.
The 92,000 new jobs in October were well below analysts' forecasts of about 125,000 new jobs. But that was offset by the Labor Department's upward revision of August and September job figures. The department said the economy actually added 139,000 jobs more than previously reported in the prior two months.
Strong job numbers help ease concerns about the depth of the U.S. economic slowdown. Third-quarter growth slowed to 1.6 percent, driven down largely by the slumping housing market. Sluggish growth figures had prompted some analysts to warn of rising risks of recession, but the new job numbers allay such fears.
In addition, average hourly earnings rose 0.4 percent in October to $16.91, an increase of 3.9 percent over the past 12 months after adjusting for inflation.
The latest trends help ease the grip on family finances commonly called the middle-class squeeze.
"For workers, you've got employment gains and real-wages gains, so that adds up to spending power," said Nigel Gault, chief U.S. economist for Global Insight, an economic consultancy in Lexington, Mass. "The question really is what happens next."
Gault expects that unless economic growth rebounds sharply from the dismal third quarter, "we'll see some weaker employment numbers in the next few months."
President Bush, campaigning for Republican candidates in Missouri, said his 2003 tax cuts paved the way for strong hiring and that the job numbers vindicate his tax policy.
"All those forecasts by the Democrats turned out to be wrong," Bush said.
House Democratic leader Nancy Pelosi, D-Calif., disagreed.
"While we are glad there is some good news for the American people, this jobs report does not fundamentally change the fact that President Bush's handling of the economy is not good for America's middle-income families," she said, adding that "for the first time in generations, parents worry that their children will not be better off than they are."
Politics aside, the October job stats complicate the Federal Reserve's job of promoting employment and curbing inflation—goals that are sometimes contradictory.
Increasingly, financial analysts had been expecting Fed Chairman Ben Bernanke to lower interest rates early next year to spur what appeared to be a slowing economy.
Now the employment numbers point to a tight labor market. That means workers have more leverage to seek higher wages. Higher wages help drive inflation up.
"If you start to see some of those costs passed on, in terms of higher prices, that's a real problem for the Fed," Gault said.
After 17 consecutive rate hikes, the Fed paused in August and has since left its benchmark rate unchanged at 5.25 percent. It influences a host of bank loan rates for consumers and businesses.
The strong job numbers make it all but certain that the Fed will leave rates unchanged in December and raise the possibility of a rate hike early next year. That could further slow economic activity, including the slumping housing market.
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(c) 2006, McClatchy-Tribune Information Services.
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