U.S. Private Sector Adds 130,000 Jobs in October

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By Lucia Mutikani

WASHINGTON -- U.S. private-sector employers hired the fewest workers in six months in October while tepid domestic demand kept inflation benign last month, suggesting the economy was still in need of stimulus from the Federal Reserve.

The slowdown in private job growth was the latest signal that the labor market has taken a step back in recent months, and the clearest indication yet that a 16-day government shutdown weighed on economic activity.

Officials from the central bank are expected to keep their monthly $85 billion bond-buying pace unchanged when they conclude a two-day meeting later on Wednesday.

"It suggests accommodative policy might be necessary for longer and more aggressive monetary policy might be needed to break the lack of momentum in the economy," said Laura Rosner, an economist at BNP Paribas in New York.

Employers in the private sector added 130,000 new jobs to their payrolls this month, the ADP National Employment Report showed Wednesday. That was the lowest reading since April and was below economist expectations for a gain of 150,000 jobs.

It was the fourth straight month that private jobs growth slowed, according to the ADP data. There was a marked slowdown in hiring by small businesses, where payrolls increased 37,000 last month, well below the 68,000 new jobs created in September.

Mid-sized firms also hired fewer workers than in September.

"The government shutdown and debt limit brinkmanship hurt the already softening job market in October," said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pa. Moody's Analytics is a joint developer of the ADP report.

While ADP data doesn't have a good track record of predicting the government's more comprehensive non-farm payrolls count, it suggested that report will find weakness as well.

The government will publish its closely watched payrolls report on Nov. 8. Payrolls increased 148,000 in September, with the unemployment rate hitting a near five-year low of 7.2 percent.

But if average monthly jobs growth continues at less than 150,000, where it has been over the last three months, that would make it difficult for the jobless rate to fall further.

In a separate report, the Labor Department said its consumer price index increased 0.2 percent last month as energy prices rebounded, after edging up 0.1 percent in August.

In the 12 months through September, the index increased 1.2 percent, the smallest gain since April.

Fed to Stay the Course

The weak labor market picture and benign inflation environment should allow the Fed to stay the course on its monthly bond purchases as it tries to stimulate the economy through low interest rates.

The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below the CPI.

U.S. financial markets were little moved by the data reports as investors awaited the conclusion of the Fed meeting.

There was no sign of underlying inflation pressures last month. The so-called core CPI -- which strips out the volatile energy and food components -- nudged up 0.1 percent. It rose by the same margin in August.

Last month's rise took the increase in the core index over the past 12 months to 1.7 percent after advancing 1.8 percent in August. %VIRTUAL-article-sponsoredlinks%The measure touched a two-year low of 1.6 percent in June and the slowdown last month could catch the attention of some Fed officials who are concerned about inflation being too low.

Last month, inflation was lifted by a 0.8 percent rise in energy prices, which accounted for about half of the rise in the CPI. Energy prices had dropped 0.3 percent in August.

Food prices were flat in September, producing the weakest reading since May. Shelter and medical care costs accounted for most of the increase in the core CPI last month. Owners' equivalent rent of primary residence rose 0.2 percent after rising 0.3 percent in August.

Medical care costs increased 0.2 percent, with hospital services rising 0.7 percent. Medical care, which makes up more than 9 percent of the core index, has been one of the key contributors to the low inflation early in the year.

Apparel prices recorded their biggest drop since March.

"Inflation remains tame, although the recent trend toward slowing still appears to have stopped, even with the dip in the change from a year ago in core in September," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics, in Valhalla, N.Y.

U.S. Private Sector Adds 130,000 Jobs in October
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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