WASHINGTON – The big question ahead of tomorrow’s release of the October employment report: How much did the 16-day partial government shutdown affect hiring last month?
The shutdown may have caused the unemployment rate to spike and hiring to slow. If so, economists expect those trends will be mostly reversed in November.
“The government shutdown has created a lot of noise and the numbers are going to be sloppy,” said Phil Orlando, chief equity strategist at Federated Investors.
Economists forecast that employers added 122,000 jobs in October, according to a survey by FactSet. That’s sharply lower than the 148,000 added in September. And it would be well below the average job gain of about 180,000 in the first nine months of this year.
The unemployment rate is projected to rise to 7.3 per cent from 7.2 per cent, the first rise since May. Some economists fear the shutdown could cause unemployment to jump to 7.6 per cent.
A large impact by the shutdown could make it difficult for economists to spot any underlying trends. They may place less weight than usual on October’s report. The Federal Reserve may also look past both October and November’s reports because of the distortions. That’s a big reason many economists expect Fed policymakers won’t pull back on their stimulus efforts until next March.
About 450,000 government workers were furloughed during the shutdown. Some employees at government contractors were also likely put on temporary layoff. And workers at restaurants, retail stores and other businesses located near national parks or federal buildings that were closed also likely cut back on staff.
Workers on temporary layoff would be classified as unemployed for purposes of the unemployment rate. That could cause the rate to jump.
But furloughed workers would still be counted as employed by the government’s survey that counts jobs. As a result, hiring may not look as bad as the unemployment rate.
Hiring was already weakening before the shutdown. Employers added an average of just 143,000 jobs from July through September. That’s down from an average of 182,000 from April through June and 207,000 in the first three months of the year.
Some recent figures suggest that businesses cut back further during the shutdown. Payroll provider ADP said last week that private companies added just 130,000 jobs last month, down from 145,000 in September. The ADP report doesn’t cover government agencies and wouldn’t be affected by government furloughs.
Separately, a survey by the Institute of Supply Management found that factories added jobs more slowly in October than September.
Other reports painted a more positive picture. Retail stores, shipping companies, and other services firms stepped up hiring in October, according to a separate ISM survey of service firms.
And the number of people seeking unemployment benefits has fallen back to pre-recession levels after four weeks of declines. Unemployment benefit applications are a proxy for layoffs. The steady decline suggests companies are cutting fewer jobs.
Economic growth accelerated in the July-September quarter to an annual rate of 2.8 per cent, the government said Thursday. That’s up from 2.5 per cent in the April-June quarter.
But greater restocking by businesses drove much of the increase, a trend that may not be sustainable. Consumers and businesses both cut back on spending over the summer.