The U.S. economy has pulled itself out of the mud, although there still is lots of grime in the gears.
Americans reported picking up jobs at a blistering pace in September, dropping the unemployment rate to 7.8 per cent, the lowest since January, 2009. A separate government survey showed non-farm payrolls expanded by an average of 146,000 a month in the third quarter, compared with an average of 67,000 from April through June.
Historically, those aren't great numbers. Between November, 2003, and July, 2008, the unemployment rate never rose above 5.8 per cent, and it's generally agreed that payrolls must expand at a monthly pace closer to 200,000 to bring about a significant shift in joblessness.
Still, the better-than-expected jobs figures signal forward momentum. That wasn't evident a few weeks ago when the Federal Reserve launched its most aggressive stimulus measures since the financial crisis. Fed chairman Ben Bernanke had grown fond of describing the U.S. economy as "stuck in the mud." Mr. Bernanke will resist making too much of one month of data, but the assessment of other economists Friday suggests the Fed chief may have to find a new metaphor.
"We hit a soft patch; it seems now we are back on track, and sooner than many expected," Stéfane Marion, chief economist at National Bank Financial, said from Montreal.
Of course, these days to be "back on track" only means to be out of danger of sliding into recession.
Only half of the more than 8 million Americans who lost their jobs in the recession have found new employment. Factory production, a primary driver of the U.S. recovery, suddenly is sputtering. The U.S. economy grew at an annual rate of only 1.3 per cent in the second quarter, and forecasters say it will do well to reach a rate of 2 per cent in the third quarter.
Last month, the Fed made a conditional commitment to keep borrowing costs extremely low well into 2015, and said it would create $40-billion (U.S.) a month to purchase mortgage securities until the labour market improves "substantially." That suggests the September figures represent a first step on a long path, since Fed officials reckon their mandate to generate "maximum" employment equates to an unemployment rate of about 5.5 per cent.
"Employment gains have been modest, only matching the growth in the population, and the unemployment rate remains unacceptably high," William Dudley, the president of the Federal Reserve Bank of New York and one of the most influential members of the Fed's policy committee, said Friday in prepared remarks for an audience in New York.
If the latest jobless figures have an immediate impact, it could be on the electoral fortunes of President Barack Obama.
Rarely do sitting presidents win re-election without economic momentum at their backs. In February, 2011, when the unemployment rate was 9 per cent, Hamilton Place Strategies, a Washington-based consultancy, began a monthly jobs scorecard, saying Mr. Obama could claim progress on the economy if the jobless rate dropped below 8 per cent by Election Day.
Russ Grote, an analyst at Hamilton Place, called Friday's report an "economically significant milestone" and predicted a raft of positive headlines that will boost Mr. Obama's campaign. Yet Mr. Grote backed away ever so slightly from the firm's prediction that an unemployment rate below 8 per cent would return Mr. Obama to the White House.
The labour participation rate has dropped to 63.6 per cent from 64.2 per cent 19 months ago; in other words, the unemployment rate fell in part because people gave up looking for work. According to Mr. Grote, if the participation rate had remained at 64.2 per cent, the jobless rate would be 8.6 per cent. That suggests U.S. voters still could be plenty discouraged with the state of the economy.
However, the unemployment rate's plunge in September from 8.1 per cent in August was the result of a massive 873,000 increase in the number of people reporting to have jobs, following three months of little change. The labour force increased by 418,000, implying renewed confidence that American companies are hiring.
There's reason to think the unemployment rate could edge back toward 8 per cent. The household survey is notoriously volatile. The Labour Department's poll of businesses showed that payrolls increased by 114,000. It's rare that the two readings are in sync, but they tend not to diverge as spectacularly as they did in September.
There were scattered suggestions that the administration cooked the books to benefit the President's re-election bid. Disinterested observers, including National Bank's Mr. Marion, who focused on the U.S. labour market as an economist at the Finance Department, dismissed that possibility outright.
"We are in 'Goldilocks' mode," Mr. Marion said. "The economy is strong enough to support domestic demand, but weak enough to justify Fed stimulus."