Jobs data lessen fears of recession

Employment rose in Sept. and Aug.

October 06, 2007|By Maura Reynolds and Walter Hamilton | Maura Reynolds and Walter Hamilton,Los Angeles Times

WASHINGTON -- Recession fears receded yesterday after the government said job growth in August and September was better than economists expected. But the sunny employment report could also dim prospects for more interest-rate cuts this year.

Payrolls expanded by 110,000 jobs in September, the Department of Labor said, slightly ahead of estimates. The unemployment rate, meanwhile, edged up to 4.7 percent, from 4.6 percent in August.

Wall Street cheered the news, with the blue-chip Standard & Poor's 500 index closing at a record high. What buoyed markets the most was a revision of August's preliminary job creation numbers, turning what had been a loss of 4,000 jobs into a gain of 89,000.

The consensus that emerged yesterday was mostly positive: Although the economy is not creating jobs quite as fast as the population is expanding, it is not contracting into a recession.

"The jobs report suggests that the economy will continue to move forward, albeit at a slower pace," said Sara Johnson, an economist with Global Insight, an economic forecasting firm in Waltham, Mass. "This means that the economy is heading to a soft landing instead of a hard landing despite the housing market turmoil."

August's jobless report - which had appeared to be the first time in four years that the economy lost jobs - spooked the markets, triggering a 250-point plunge in the Dow Jones industrial average. It also loomed large in the Federal Reserve's Sept. 18 decision to cut its benchmark interest rate by a larger-than-expected one-half of a percentage point.

Yesterday, the Bureau of Labor Statistics said the reversal was largely due to an adjustment in the number of education jobs, as August surveys underestimated the numbers of teachers employed by local school districts.

The new report now puts a question mark over Fed Chairman Ben S. Bernanke's next move. Many had predicted that the Fed would continue to ratchet down its federal funds rate at meetings this month and in December to prevent the housing slump and credit crunch from derailing the rest of the economy.

"I think there's a pretty good chance that the Fed is done cutting interest rates," said Bill Buechler, president of Barclay Partners Asset Management, a hedge fund firm based in La Jolla, Calif.

Bond traders were certainly betting that way yesterday. The yield on the 10-year U.S. Treasury note, to which many home-loan rates are pegged, rose to 4.64 percent, from 4.51 percent Thursday.

Johnson of Global Insight, however, predicted that the Fed would proceed with plans to loosen the reins on credit.

"We think the economy is fragile enough that the Federal Reserve will need to cut rates further," Johnson said.

As for the Federal Reserve itself, a senior official indicated yesterday that the central bank will take a "nimble" approach to interest rates in order to steer the economy through the current credit crunch.

"Once we get through the near-term weakness caused by the extra downleg from the housing contraction and any spillover from tighter credit conditions, I am looking for moderate growth with high levels of employment," Fed Vice Chairman Donald Kohn said in a speech to the Greater Philadelphia Chamber of Commerce.

"We will need to be nimble in adjusting policy to promote growth and price stability," Kohn said.

Economists say they expect that the unemployment rate to continue to tick up in coming months, but that it is unlikely to be a drag on the economy.

One reason is that real wages are also on the rise, and the economists predict consum- er spending will remain strong.

Maura Reynolds and Walter Hamilton write for the Los Angeles Times.

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