September unemployment rate drops to 7.8%

8:33 AM, Oct 5, 2012   |    comments
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by Paul Davidson, USA TODAY

Employers added 114,000 jobs in September, about what economists expected. And the unemployment rate fell from 8.1% to to 7.8% -- lowest since January 2009 -- as health care and transportation and warehousing led job gains.

Businesses added 104,000 jobs while federal, state and local governments added 10,000.

The jobless rate fell sharply because it's calculated from a different survey than the official employment number. That household survey showed a robust 873,000 increase in people employed and a 456,000 decline in the number of people unemployed.

However, many of those job gains were in part-time and self-employed positions.

The report is the government's next-to-last reading on employment before the presidential election and could influence undecided voters.

One positive sign: the Labor Department revised up estimated job gains for July and August by a total of 86,000. July's total rose from 141,000 to 181,000, while the August number increased from 96,000 to 142,000.

The report shows "continued improvement at a modest pace," said Wells Fargo Chief Economist John Silvia.

Before the report's release, economists had estimated that employers added 115,000 jobs in September, including 129,000 in the private sector and 14,000 government job losses.

After the economy added a solid 200,000-plus jobs a month early this year, job growth slowed to an average monthly pace of 97,000 from March through August.

Economists partly blame a confluence of scheduled tax hikes and spending cuts at year's end that threaten to push the nation back into recession if a divided Congress can't stave them off.

"Until the fiscal cliff issue is resolved, we're not going to get strong job growth," says Joel Naroff of Naroff Economic Advisors. Businesses, he says, are hesitant to invest and hire when they could be saddled with large tax increases within months.

Companies are also worried about the lingering European debt crisis and recession, which are dampening exports, and rising gasoline prices that are likely to crimp consumer spending.

Economic growth, meanwhile, has been running at less than a 2% annual pace this year. IHS Global Insight says it expects 1.5% growth the second half of the year. slightly less than the first half.

Naroff projects average monthly job gains of 125,000 to 150,000 the rest of 2012, barely enough to keep the unemployment rate from rising.

Economic reports this week underscored the halting recovery. First-time jobless benefit claims rose by 4,000 to 367,000. And while surveys showed both manufacturing and service business activity expanding in September, hiring slowed in the service sector -- which makes up 80% of the economy.

In September, vehicle sales remain strong, and the long-depressed housing market has started to turn around according to several recent private and government reports.

To further spark home sales and the economy, the Federal Reserve last month announced a bold new program to buy $40 billion a month in mortgage-backed securities to further push down interest rates and pump up stocks. The Fed said it would continue the purchases and possibly buy other assets until the job market improves significantly.

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