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US Labor Market Tighter Than Estimated
By Krishna Guha in Washington & Daniel Pimlott, Michael Mackenzie and Richard Beales in New York Financial Times (FT.com
October 7, 2006
The US economy added many more jobs than previously estimated in the later stages of the current cycle, dramatic new data revealed on Friday, raising theprospect that the labour market today may also be tighter than previously thought.
According to the new figures, the economy added 810,000 more jobs than earlier estimated between April 2005 and March 2006, an average of 67,500 more jobs every month over that period.
The upward revision – the biggest in a quarter of a century – casts the expansion in a new light, leaving it less "jobless" than before, though the rate of job creation since the 2001 recession remains low by historic standards.
Friday's employment report also showed the unemployment rate fell from 4.7 per cent to 4.6 per cent in September.
The latest non-farm payroll numbers offered a mixed picture, with only 51,000 jobs added in September – well short of analysts' estimates of about 125,000 – but a combined 61,000 upward revision for July and August.
The job market data sent stocks and bonds lower as the signs of unexpectedly high employment outweighed the weak headline growth in September.
Meanwhile, the Congressional Budget Office announced that it was cutting its estimate for the federal budget deficit by another $10bn to $250bn, down from $318bn the previous year.
Bush administration economic officials seized on the jobs and deficit numbers to try to draw political debate away from the scandal in Congress on to the economy ahead of mid-term elections next month.
"We now find we created not 5.7m new jobs but 6.6m new jobs since August 2003," Rob Portman, director of the office of management and budget, said on Friday. "That happens to be about the time when the president's tax relief was fully implemented."
Mr Portman said the official figures for the deficit, which will be announced next week, will also be better than forecast in July, with tax revenues higher than their historic average of 18.2 per cent of gross domestic product. Some analysts said that the employment report vindicated the Federal Reserve's continued focus on inflation in spite of signs of slowing economic growth in the US.
"A few key aspects of the report are strong and will add to fears that labour market resources are tight and will keep the pressure on the Fed to err on the side of tightening," said Alan Ruskin, chief international strategist at RBS Greenwich Capital.
Hourly wages rose by 0.2 per cent, bringing the year-on-year increase to 4.0 per cent.
"The 810,000 upward revision was far larger than typical, and implies an increment of almost 70,000 to monthly payroll gains in the year ending in March,"said Peter Kretzmer, senior economist at Bank ofAmerica.
Joshua Shapiro, chief US economist at MFR, said the revisions pointed to "a much more vibrant labour market in the not too distantpast than had been reported earlier".
Stocks were lower on the news after three days of multi-year highs. Treasuries also fell on fears the report made it less likely the Fed would cut rates next year.
"The bond market was looking for further signs of moderation and didn't get it," said Kevin Flanagan, fixed income strategist at Morgan Stanley.
He said the upward revisions and wage growth did not support the market perception the Fed could cut rates soon.
But other economists questioned the reliability of the data.
"We are skeptical, given the quality of the data," said Mike Englund, an analyst at Action Economics.
The US jobs report also indicated that people evacuated as a result of Hurricane Katrina are still struggling to find work a year on.
The unemployment rate for evacuees was 8.3 per cent in September.
But the rate was much higher for evacuees who were not living in their old homes.
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