Updated from 10:38 a.m. EST
Memories of March came flooding back Friday, as the job market turned back on like a light switch after several months of anemic growth.
But just as solid employment gains in the spring proved to be unsustainable, so, some economists say, will the robust gains of October.
Nonfarm payrolls rose by 337,000 in March, well above consensus estimates for 175,000. Also encouraging, the months of August and September were revised up by a combined 113,000. Average hourly earnings increased 0.3%, in line with the estimates, but the unemployment rate inched up to 5.5% from 5.4%.
"These numbers make it very tempting to call the end of the soft patch but we are reluctant to do so," said Ian Shepherdson, chief economist at high Frequency Economics. "The true state of the job market is nothing like as strong as this report."
Firstly, he said, there are "clear post-hurricane effects" in the data, with construction jobs up 71,000 in October compared to an average of 11,000 in the previous three months. The Bureau of Labor Statistics said construction jobs were boosted by cleanup and reconstruction efforts in the Southeast.
In addition, there was a 103,000 rise in education, healthcare and government jobs, "which are not the core of the wealth-creating economy," said Shepherdson, who predicted that job growth would be exceed consensus estimates.
"The real test for the job market will come over the next two months as the effects of hurricanes fade," he said. "Remember that both the help wanted numbers and the jobless claims data are consistent with payroll growth of 150,000 per month at best."
The financial markets didn't stop to reflect. Stocks rose and bonds tumbled, as traders increased the odds for a fifth rate hike in December. Investors were already fully prepared for a fourth rate hike next Wednesday.
The yield on the 10-year Treasury climbed to 4.19% from 4.07% on Thursday. The
was up 49 points at 10,364 and the
was up 11 points at 2,035.
Anirvan Banerji, director of research at the Economic Cycle Research Institute, said he is surprised how much the markets have reacted to the employment report, given that it has been skewed by bad weather and is unlikely to continue at this pace going forward.
"This is not the first month of a string of 300,000-plus jobs," he said. "Manufacturing is still in a global slowdown and as long as that persists, we are not going to get back to the strong growth in GDP that we saw late last year and early this year."
Manufacturing employment fell by 5,000 in October, the second straight loss. The factory workweek declined a tenth of an hour, and total hours worked in manufacturing fell 0.3%. The average workweek overall held steady at 33.8 hours.
Banerji expects about 200,000 job gains per month to be created going forward, which would be an improvement from the sluggish job growth of June and July.
"That is not bad but it's not that great," he said. "When you have 3.5% to 4% GDP growth, a couple of hundred job gains is not that good. You'd expect to see 300,000 to 400,000, like the numbers we saw today, which were affected by a one-time anomaly."
Although a strong pick-up in economic growth "is not in the cards," Banerji said a sharp downturn in the economy isn't likely either. "The message is: don't worry, don't be happy," he said.
Lawrence Mishel, president of the Economic Policy Institute, said if job growth remains strong over the next few months, the unemployment rate would probably rise, as more people come back into the labor force. The jobless rate inched up in October, as the labor force rose by 367,000.
Over the past few years, thousands of people became discouraged in their quest for work and simply dropped out of the labor force, sending the unemployment rate down to a low of 5.4% from 6.3% last June.
"We will see over the next several months whether the labor market has finally established a firm recovery," said Mishel. "We saw similarly strong job growth in the early spring, but it faltered over the summer."
In March, nonfarm payrolls increased by 353,000 after just 83,000 were added in February. In April and May, employment rose by 324,000 and 208,000, respectively. But things slowed down in June and July, with job growth of just 96,000 and 85,000, respectively.
"The October figures may suggest a stronger labor market than actually exists," said Oscar Gonzalez, an economist at John Hancock Financial Services. "Absent a continuing surge in new jobs, the huge trade and fiscal deficits along with rising interest rates will probably hold economic growth down a bit into the New Year."
He still expects the economy to grow at a 3.5% to 4% rate in the fourth ad first quarters, however.
One disappointing feature of Friday's jobs report, aside from a decline in manufacturing employment, was that the number of industries adding workers in October fell to 58.1% from 61% in September.
Still, economists were pleased to see the services industries add 272,000 jobs, the most since April. Retail added 21,000 jobs and professional and business services added 97,000, although that included 48,000 temporary positions. Education and health services added 62,000 and the government added 41,000.