Job growth rebounded strongly last month and the unemployment rate fell below 6% for the first time in more than six years, easing fears the labor market was faltering again and providing a boost to congressional Democrats before the midterm elections.
Economists were relieved that an August hiring slowdown now appears to have been just an anomaly.
But they warned of worrisome signs in Friday’s Labor Department report — stagnant wages and more discouraged jobless Americans dropping out of the workforce — that showed the recovery from the Great Recession still has a ways to go.
“The trend is positive,” said Alan MacEachin, chief economist at Navy Federal Credit Union, the nation’s largest credit union. “But there were some things in the report that continued to cloud the picture.”
The top-line numbers were excellent.
The economy added a robust 248,000 net new jobs, and the unemployment rate dropped 0.2 percentage point to 5.9%, the lowest since July 2008, the Labor Department said.
Job growth in July and August also was revised upward by a total of 69,000. That included lifting August’s disappointing initial estimate of 142,000 net new jobs to 180,000.
The report triggered “a sigh of relief on both Wall Street and Main Street,” said prominent economist Sung Won Sohn, a professor at Cal State Channel Islands.
“August was an aberration, and we’re back to healthier growth and that’s good,” he said.
The report buoyed financial markets. The Dow Jones industrial average was up 208.64 points, or 1.24%, on Friday. And the dollar soared against major currencies.
Economists had expected job growth to improve last month, attributing the poor August figures to one-time and seasonal factors.
But the September increase was much better than the consensus forecast of 215,000 net new jobs and an unemployment rate holding steady at 6.1%.
As the labor market struggled to grow early in the recovery, economists wondered whether the nation had entered an era where the unemployment rate would never fall below 5%. The recession had pushed it to 10% in October 2009 and the rate remained at least 9% for nearly two more years.
But now the rate is dropping faster than anticipated — 1.3 percentage points since September 2013.
“If you’d asked me, I wasn’t sure I’d ever see an unemployment rate with a 5 in front of it during the Obama administration,” Jason Furman, chairman of the White House Council of Economic Advisers, told CNBC on Friday.
The final jobs report before the Nov. 4 midterm elections was good news for Democrats. It came as President Obama sought this week to emphasize the progress the economy has made under his watch and gave the party something to tout in the final weeks of the campaign.
“This progress that we’ve been making, it’s been hard,” Obama said during an appearance Friday at an Indiana steel factory. “It goes in fits and starts. It’s not always been perfectly smooth or as fast as we want, but it is real and it is steady and it is happening.”
But Republicans were quick to point out the weaknesses the report showed still existed in the labor market.
“Optimists will spin the top-line numbers, and the administration will tout them as well,” said Douglas Holtz-Eakin, president of the conservative-leaning American Action Forum think tank. “But the underpinnings of the decline in unemployment and the absence of earnings growth are reasons to be cautious.”
Part of the reason the unemployment rate fell last month was 97,000 adults dropped out of the labor force.
That accounted for about half of the 0.2-percentage-point decline in the September unemployment rate, MacEachin said.
Discouraged unemployed workers giving up their job searches has been a problem plaguing the recovery. The labor force participation rate ticked down slightly in September, the second straight monthly decline. Last month’s level matched the lowest since 1978.
Another negative was continued weakness in workers’ wages.
Average hourly earnings dropped a penny to $24.53 last month and have risen just 2% for the year that ended in September.
“What you’re seeing is a jobs market that’s improving slowly but still with enough slack to keep wages flat,” said Harry Holzer, a professor of public policy at Georgetown University and former Labor Department chief economist.
“When there’s a lot of slack in the labor market, employers can find the workers they need without having to raise wages,” he said. “It remains a buyers’ market, and the buyers are the employers.”
MacEachin said the unemployment rate would need to fall below 5.5% before wages start increasing significantly, which would provide consumers with more money to spend and boost economic growth.
Although hiring accelerated and the unemployment rate dropped to a level Federal Reserve officials had forecast would not be reached until year’s end, there was still enough concern about the labor market that central bank policymakers still are unlikely to raise interest rates before the middle of next year, Sohn said.
“At the Fed, some people think wages are more important than the jobs right now, and until and unless wages go up more rapidly, they may think twice about raising interest rates,” he said.
The labor market had been on its best hiring streak since 1997, adding more than 200,000 jobs a month from February through July before growth stumbled in late summer.
But August is historically a tough month for job estimates. A grocery store strike and a shift in when automakers shut their factories for summer retooling also complicated the data.
For each of the last four years, figures for August have been revised upward in September and again in October by an average total of 80,000 jobs.
Part of the reason for September’s stronger job growth was a rise in retail employment of 35,000 net new positions.
Included in that was an increase of 20,000 jobs in food and beverage stores, largely reflecting the return of workers at the Market Basket grocery store chain in New England, the Labor Department said.
Professional and business services, along with healthcare, also saw strong job growth in September.
But hiring by manufacturers continued to be sluggish. Those are the type of good-paying jobs that would increase average wages.
Factory payrolls rose by just 4,000 net new positions in September, an improvement over August’s loss of 4,000 jobs but still weak.