More Labor Pains

September proved to be yet another month that employment growth fell short of economists' forecasts. A total of 96,000 jobs were added last month, while the jobless rate remained unchanged at 5.4%, the Labor Department said on Friday. Nonfarm payrolls fell far short of the 145,000 that economists anticipated, not to mention that 250,000 whisper number. In the past three months, the labor market has expanded by 103,000 workers a month, on average. And that poky pace doesn't even keep up with population growth.

"The report is decidedly weak," says Sophia Koropeckyj, economist at West Chester, Pa.-based Economy.com. "When you cull through all the numbers, there really isn't much of a silver lining."

Indeed, the underlying industry data proved to be a mixed bag. Manufacturing, which had been on the rebound, shed 18,000 jobs, while retail and telecommunications lost 15,000 and 9,000, respectively. Professional and business services and government added 34,000 and 37,000 jobs, respectively, while leisure and hospitality tacked on 13,000.

Previous months' estimates were also tweaked a bit. The Labor Department said 85,000 jobs were added in July, instead of the previously reported 73,000. But August's payroll estimate was revised lower to 128,000 from 144,000. Also, the department released its preliminary revision — or so-called benchmark revision — for the first quarter, estimating that March 2004 estimates would be revised higher by 236,000, or 0.2%. That's lower than the historical average of 0.3%. (Benchmark revisions are an annual re-anchoring of the employment figures.)

Muddling September's results was a series of hurricanes that ravaged the Southeast. While the Labor Department took extra care to quantify the impact of the stormy weather on the employment picture, it wasn't very clear cut. Some folks lost their jobs, while others were hired in cleanup and reconstruction efforts. "At the national level, the severe weather appears to have held down employment growth, but not enough to change materially the bureau's assessment of the employment situation in September," the Labor Department said in a statement.

The overarching problem with the labor market is that business confidence is fragile, according to Koropeckyj. Not only are companies concerned with the geopolitical situation, but they're also contending with higher energy and health-care costs. Compounding matters, commodity prices, which had started to cool, are heating up anew. What's clear is that the labor market is growing at a more modest pace than anyone expected, says Koropeckyj. That's a concern: It means the economy isn't growing fast enough to create a sufficient number of jobs to absorb laid-off workers and new entrants to the work force, she says.

Although the latest jobs read was tame, it needs to be interpreted cautiously, says Richard DeKaser, senior vice president and chief economist at Cleveland-based National City. "Job growth in September was soft," he says. "What remains unclear — including to the Bureau of Labor Statistics — is the role of the hurricanes in depressing employment growth. I believe from past experience that they've depressed the past two months' [job gains]." The final impact won't be known until October's jobs report, due to be released after Election Day. That said, DeKaser isn't concerned about the pace of employment gains. "We've gone from 6.3% to 5.4% in the last 15 months, and if it continues in the same direction in the months ahead I would be very comfortable with the economy's prospects," he says.

September's employment follows close on the heels of some mixed labor news. The latest read on initial jobless claims posted a sharper-than-expected drop, falling to 335,000 for the week ended Oct. 2 from 372,000 (revised from 369,000) a week earlier — better than the consensus forecast of 350,000. But the four-week moving average, which smoothes out fluctuations, inched higher to 348,500.

The number of planned job cuts by employers also surged to an eight-month high of 107,863 in September — an increase of 41% from a year earlier, according to a report released Tuesday by outplacement firm Challenger Gray & Christmas. Of course, seasonal patterns are partly to blame: The period from September to December is historically a volatile time for the job market, as it's when the heaviest downsizing occurs.

Meanwhile, some major layoffs were announced this week by Bank of America (BAC) and AT&T (T). BofA unveiled on Thursday a work-force reduction of 4,500, or 2.5% of its staff, as the bank integrates its acquisition of FleetBoston Financial. AT&T said it would lay off 7,000 employees amid its exit from the consumer business (some of the cuts have already been made). Separately, Bombardier said it planned to lay off 2,000 employees to lower costs, warning that an additional 1,200 jobs could be cut if Delta Air Lines (DAL), a major customer, enters bankruptcy.

Tension was palpable ahead of Friday's report — and with good reason. With the labor market taking its own sweet time to recover, the economy has long been a focus of discussion among politicians. The timing of this particular report only compounds the drama: September's jobs release is the last key employment reading before voters head to the polls on Nov. 2. And it comes only hours ahead of George Bush and John Kerry's second debate Friday evening.

Count on the latest job numbers to be tossed about during the night's verbal volleys. "It provides ammunition for both sides," says Patrick Fearon, an economist at A.G. Edwards & Sons. "It's sort of an equal-opportunity report." The president will likely emphasize the low unemployment rate and the 1.8 million jobs added since the August 2003 trough, while the senator will no doubt criticize the sluggish pace of new job additions. "Each of the parties is going to spin in their preferred direction," says National City's DeKaser. "I really don't think today's results dramatically change the dynamic of this particular [issue]."

Some economists, however, see the latest report as distinctly favoring Kerry.

"It's not good news for the administration," says David Wyss, chief economist at Standard & Poor's. The drain of manufacturing jobs is a recurring theme in Kerry's stump speeches, and he'll no doubt capitalize on it on national television during the final two presidential debates. Of course, there is the possibility that there's a fundamental change afoot in the labor market, adds Wyss. "We've just never seen this weak a recovery, and that could suggest that there's a structural change in the labor market," he says. Employers are hiring more contractual workers so they don't have to pay health care and benefits. "Companies are moving toward just-in-time hiring as they use just-in-time inventories."

And that could be a positive or a negative — depending on your political leaning.