Job gains heralded as shift in economy

The surging US economy added jobs for the third consecutive month in October, as the unemployment rate fell and economists declared an end to the "jobless recovery."

The Labor Department reported yesterday that employers boosted payrolls by 126,000 jobs in October and that it had significantly underestimated job gains in the previous two months.

All told, the economy has created nearly 300,000 jobs over the past three months, the Labor Department said.

Meanwhile, the national unemployment rate slipped to 6 percent, from 6.1 percent in September. Unlike recent declines, economists noted, which were led by discouraged workers dropping out of the labor force, the rate declined in October for the right reasons: more employed and fewer unemployed workers.

"As an economist, I feel I should find a cloud in the silver lining," said Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, "but this is as good as anybody could have reasonably hoped for. The economy is moving into a higher gear."

The shift is occurring at an opportune time for President Bush, who is less than two months away from a presidential election year.

For much of 2003, administration officials insisted it was only a matter of time before Bush's tax cuts and economic policies would spark job growth -- even as Democrats lambasted him for presiding over the most job losses since the Hoover administration.

Even with the job gains of the past three months, the United States has lost more than 2 million jobs, net, since Bush took office.

Yesterday, speaking in North Carolina, Bush hailed the positive economic news, but said more needed to be done, including making permanent the recent federal tax cuts, which expire between 2005 and 2010. "We won't rest until everyone who wants to work can find a job," Bush said at a fund-raiser in Winston-Salem.

Democrats were unimpressed.

In a prepared statement, the House Democratic whip, Steny H. Hoyer of Maryland, said the job gains were too little, too late. "Barring an economic miracle, this president will finish his term with a negative job-creation record, the first since the Great Depression."

Yesterday, economists said they don't see a miracle coming, but stressed that the October employment report provides the most compelling evidence yet the economy has finally turned the corner.

It is the latest of a series of data pointing to a solid rebound, including recent reports showing the economy, as measured by the output of goods and services, growing at its fastest rate in nearly two decades, productivity surging, and businesses finally beginning to buy software and equipment.

Other signs point to continued job growth, too, including rising corporate profits, a sharp drop in the number of people filing first-time unemployment claims, and six consecutive months, including October, of employers adding temporary workers to their payrolls. Economists consider temporary employment a precursor to permanent hiring.

"The job-creation recovery has begun," said James O'Sullivan, senior economist at UBS Warburg in Stamford, Conn.

Job creation, of course, has been the missing component of a recovery that began two years ago, as measured by the output of goods and services. Economists have blamed much of the so-called jobless recovery -- "job loss" recovery to some -- on the reluctance of businesses to hire in the face of continued concerns about terrorism, the Iraq war and occupation, and the economy's long-term prospects.

Rather than hiring to meet demand, businesses instead squeezed more out of their existing work force or sent production overseas. But the job gains reported yesterday show that businesses are finally regaining enough confidence to take the risk of adding workers, said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis.

"The economy is sizzling, and now it's being supported by job growth," Sohn said. "All the pieces are falling in place to give us sustained economic growth."

Most employment sectors experienced growth in October, led by education and health services, which added 56,000 jobs, and professional and business services, which added 43,000 jobs.

Even the government sector, beleaguered by state and local budget cuts, added jobs last month.

Manufacturers, however, were still cutting payrolls, continuing more than three years of consecutive monthly job losses. Economists contended that the pace of the jobs losses has slowed considerably, though, and Dan Meckstroth, chief economist at Manufacturers Alliance/MAPI, said he expects manufacturing employment to begin to rebound early next year.

But, Meckstroth added, manufacturing is likely to regain only a portion of its lost jobs, continuing the decades-long decline in US factory employment. In each of the last two recoveries, manufacturing regained less than half the jobs it lost in the preceding recession.

Fierce competition, foreign and domestic, has meant that US manufacturers have had little choice but to find ways to keep payrolls lean. And they have done that for decades by boosting productivity -- the amount produced per hour worked -- at rates that are 50 percent higher than for the general economy.

"Manufacturing has always been a leader in the parsimonious use of employees," he said.

Robert Gavin can be reached at rgavin@globe.com. Material from Bloomberg News was used in this report.