Unemployment rate drops to 7.8% in September

WASHINGTON — The nation’s unemployment rate fell below 8% in September for the first time in 3½ years, giving President Obama a boost in the wake of his sluggish debate performance and suggesting the economy may be a bit stronger going into the final months of the year than previously thought.

Overall, employers added 114,000 net new jobs over the month, a relatively modest figure but in line with what analysts had expected. Job growth for July and August was revised considerably higher than previously reported, to 181,000 and 142,000 respectively, the Labor Department said Friday.

Far more surprising was the unusually large decline in the jobless rate, from 8.1% in August to 7.8% last month. All year, the unemployment figure had hovered between 8.1% and 8.3%. The September rate is the lowest since January 2009, when Obama was inaugurated as president.

At this stage of the election season, any new economic report is unlikely to have much effect on voters’ decisions. The latest report, which was more complicated than most, was met with skepticism, even aspersion, from some corners. Former General Electric chief Jack Welch accused the Obama administration of manipulating the jobless rate.

While economists took the steep drop in unemployment with a grain of salt, they generally agreed that the report overall was evidence of an improving, albeit still tepid, economic recovery.


Significantly, the unemployment rate for September didn’t fall because more people dropped out of the labor force, as in previous months. The average hours worked last month rose, as did workers’ hourly earnings. And the share of the working-age population with jobs — considered an important measure of labor-market health — reached the highest rate in more than two years.

“Absolutely, it’s positive,” said Paul Ashworth, an economist at Capital Economics. “There’s nothing to dislike about it.”

Stock investors reacted cautiously to the employment news. The White House cheered Friday’s report, coming just two days after Obama’s first debate with Republican challenger Mitt Romney.

“Given the dearth of positive news, it’s still a welcomed report,” said Harry Holzer, a professor of public policy at Georgetown University. For Obama, he added, “the timing of this may cut short any strong movement to Romney because of the bad debate.”

The jobs report, the next-to-last one before the Nov. 6 election, takes away one of Romney’s talking points — that, under Obama’s watch, the economy has struggled with more than 8% unemployment for 40-plus consecutive months.

In a statement Friday, Romney shifted his focus to the net loss of manufacturing jobs from 3½ years ago. And he said the overall unemployment rate would be closer to 11% were it not for the many workers who have dropped out of the labor force. Depending on assumptions made in the size of the potential labor force, analysts said the real jobless rate could be between 9.5% and 11%.

As for manufacturing, after a strong comeback in the prior two years, hiring at factories has fizzled this year amid weaker global growth and a slowdown in business investments by American companies.

Labor Department officials defended the integrity of the jobs report, noting that unemployment rates have fallen by such large magnitudes in the past. Part of the explanation for what happened in September, they said, was that their survey of households — which is the basis for the jobless rate calculation — determined that 873,000 more people were working last month. That’s almost eight times more than what the survey of employers showed in new jobs.

Over time, the two surveys track each other; in fact, averaging the last three months, the job numbers from the two surveys are not that far apart. But the smaller household survey can be much more volatile from month to month, even as it does a better job capturing hiring at new companies and the self-employed.

Despite the apparent discrepancy, economists said the jobs report suggested that the economy had bounced back from the spring doldrums with more pep than previously thought. With the upward revisions for the summer, the nation added on average 146,000 jobs a month in the third quarter. That compares with 67,000 a month in the second quarter.

The revised job numbers also may help explain the disconnect over the summer when consumer confidence steadily improved while reports did not show a corresponding gain in jobs.

Still, analysts remained cautious about the economic outlook, saying one month’s report doesn’t change the trend of a recovery that has been largely bumpy and sluggish. Job growth depends on economic performance, and the most recent indicators show some improving trends, notably in housing, but still weak overall growth.

If the housing market continues to gain strength, it probably would give a boost to consumer spending and hiring. Housing sales and new-home building have picked up recently, and refinancing activity has surged in the last couple of weeks in the wake of the Federal Reserve’s new bond-buying stimulus program to drive down long-term interest rates.

In September, the real estate finance sector added 7,100 jobs, the most in more than a year. Wood manufacturers, building-supply retailers and architectural services — industries with close links to housing — also increased payrolls last month.

Healthcare led all sectors in job creation last month, adding 44,000 to its payrolls. Transportation and wholesale businesses added 17,000, and employment in financial services, including real estate, grew by 13,000.

Manufacturing shed 16,000 jobs last month, underscoring the decline in global trade, difficulties in Europe and a slowdown in China. The other head wind for the economy is the uncertainty over fiscal spending and tax increases next year.

Heidi Shierholz, a labor economist at the Economic Policy Institute, said she was heartened by the big drop in the jobless rate.

“It gives us hope that there’s going to be a somewhat faster decline in the unemployment rate than we had previously expected,” she said.