WASHINGTON -- Despite another drop in homebuilding work, U.S. employers in October added twice as many jobs as expected, bolstering hope that the economy can stave off recession in the coming months.
The Labor Department reported yesterday that payrolls grew by 166,000 jobs in October as unemployment held at 4.7 percent.
Although the increase in jobs was well above consensus forecasts of 80,000, economists expressed concern that it was not enough to offset other factors, including falling home sales and a credit squeeze stemming from the subprime mortgage crisis.
"Does this report mean that recessionary concerns can be set aside? Absolutely not," said Nigel Gault, an economist with Global Insight, an economic forecasting company.
"The credit crisis continues to rage, and nobody can be sure how much further housing has to decline -- and how hard the housing decline and rising oil prices will hit consumer spending."
Crude oil closed up $2.44 at $95.93 yesterday, inching closer to the unthinkable $100 threshold and all-time inflation-adjusted highs.
Asha Bangalore, an economist with Northern Trust Co., said that payroll gains for 2007 had averaged 125,000 jobs a month, compared with 189,000 jobs a month in 2006.
"Despite the impressive headline number for payroll employment, hiring has essentially cooled down," she said.
Although the report, issued early in the day, is good news for many workers, it did little to reassure Wall Street, which remains anxious about the economic effect of mounting mortgage defaults.
Economists said the relatively robust job report would give the Federal Reserve more reason to set aside worries about recession and to keep interest rates where they are through the end of the year.
The Fed has lowered its benchmark interest rate twice in the past two months, to 4.5 percent, in an effort to cushion the impact of the mortgage crisis, but the central bank indicated this week that it is not inclined to cut rates further.
"Although the noticeable increase in payroll employment masks the soft tone of the October employment report, it allows the Fed to pause at the Dec. 11 meeting," Bangalore said.
Construction payrolls essentially held steady in October as a decline in the number of jobs in homebuilding was offset by gains in other kinds of construction.
"I expect a continuation of the pattern we have been seeing -- a layoff in home construction but an increase in payrolls for construction of schools, power plants and other infrastructure," said Ken Simonson, an economist with the Associated General Contractors of America, a trade group in Arlington, Va.
Peter Kretzmer, senior economist with Banc of America Securities in New York, said the employment report shows a dichotomy between the economy and the financial markets.
"Despite gradual softening in some sectors, the economy has grown at a moderate, even solid pace with associated healthy job creation," Kretzmer wrote.
"Meanwhile, the uncertain size of mortgage credit problems, the loss in value of securities backed by these loans, and the exposure of several large financial institutions is maintaining a high degree of volatility and pessimism in financial markets."
Bush administration officials, who have been eager to contain the damage from the instability in the credit markets, say the economy is bearing up.
"Our view is that the U.S. economy is doing well, despite several challenges," Assistant Treasury Secretary Phillip L. Swagel said. "We see continued growth in job creation, even with the housing market downturn, the credit disruption and high energy prices."
Maura Reynolds writes for the Los Angeles Times.