US unemployment fell to its lowest rate in more than five years last month, figures revealed on Friday, giving President George W. Bush’s Republican party a boost before Tuesday’s mid-term elections.
The monthly payroll report showed the US economy created 139,000 more jobs than previously thought in August and September, and added 92,000 in October.
Unemployment fell from 4.6 per cent to 4.4 per cent, while hourly wages rose 0.4 per cent over the month, making it unlikely that the Federal Reserve would soon consider cutting interest rates.
Bond prices fell sharply, with the yield on the 10-year note rising eight basis points to 4.68 per cent shortly after the announcement. The dollar strengthened, while stocks moved higher.
Jan Hatzius, chief US economist at Goldman Sachs, said: “This is clearly a stronger-than-expected report. It shows that the economy is not falling off the rails.” But he warned that unemployment tends to lag economic growth and would probably rise in coming months.
The White House seized on the strong jobs report in a late drive to make up lost ground before the elections, which are expected to produce sweeping gains for opposition Democrats.
Rob Portman, the White House budget director, said the Democrats’ refusal to make the Bush tax cuts permanent “could put all the strong economic growth we are talking about at risk”.
Mr Bush has made the economy a central part of his appeal but has struggled to make headway, largely because middle-income Americans have shared only a small fraction of the economic gains since 2001.
Ed Lazear, chairman of the White House council of economic advisers, said the 2.4 per cent rise in real wages over the past year showed the benefits of growth were “feeding through to the middle classes”. Pro-Democrat economists remained sceptical.
James Thurber, a political scientist at American University, said Republicans should not expect the labour market report to have a huge effect on voters. “It certainly is better for the Republicans than bad news, but I think it will have very little impact.” Mr Thurber said the top election issue was Iraq, while the economy mattered mostly at a local level, in particular in Ohio, Indiana and Kentucky, where nine Republican House members are struggling to win.
A breakdown of the figures showed the service sector created 118,000 jobs in October, with a further 34,000 from government hiring. Manufacturing and construction combined shed 60,000.
The picture of a two-speed economy with strength in services was reinforced with a higher-than-expected reading on the ISM index of business activity in non-manufacturing companies. The monthly household survey, released yesterday, suggested the pace of jobs growth was stronger in October than the payroll report estimated.
