Employers unexpectedly shed 95,000 jobs in September as government layoffs outweighed modest private hiring, the Labor Department said Friday, but stocks rallied on stepped-up expectations that the Federal Reserve will take aggressive action soon.
Wall Street had expected no net hiring last month, but a 159,000 drop in government jobs swamped a 64,000 gain in business payrolls. Meanwhile, revised July and August figures showed bigger job losses than previously estimated.
The jobless rate held steady at 9.6%, near a 26-year high. Wall Street had expected a rise to 9.7%.
"The economy is slogging along," said Jerry Webman, chief economist at OppenheimerFunds. "We have a ways to go before we have an economic expansion that people are going to find satisfying and encouraging."
Despite the weak jobs report, investors were satisfied and encouraged that the Fed would save the day once again with a new round of asset purchases to keep interest rates low and boost the economy. The Nasdaq rose 0.8%, the S&P 500 0.6% and the Dow 0.5%.
Treasury yields continued to fall in anticipation of Fed action. The dollar hit a fresh 15-year low vs. the yen, pushing commodities higher.
The central bank has already cut its rates to a record low near zero and bought $1.7 trillion of mortgage securities and other debt to encourage consumers to spend and businesses to expand.
The federal government lost 76,000 jobs last month, mostly more temporary census workers. State and local governments cut an unexpectedly large 83,000 employees, many of them teachers, amid falling tax revenues.
Meanwhile, much of the 64,000 gain in private sector hiring came from health care and temp positions, "which aren't ingredients for a robust recovery," said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com.
Private service firms added 86,000 jobs, but goods producers cut 22,000. Less than half of industries reported net hiring for the first time since January.
The underemployment rate, including discouraged workers and part-time staffers who would rather work full time, rose by 0.4 percentage point to 17.1%.
September's jobs report was the last before the Nov. 2 midterm elections and the Nov. 2-3 Fed meeting. Republicans are seen retaking the House and possibly the Senate amid voter anger at President Obama over the economy.
Some Fed officials such as Dallas Fed President Richard Fisher have tried to stress that quantitative easing is not a "done deal."
St. Louis Fed chief James Bullard told CNBC on Friday before the jobs report that policymakers face a "tough call," saying it's not "obvious" they need to act.
But markets are taking their cue from Fed chief Ben Bernanke, who has pledged further action if the economy slows sharply. New York Fed President William Dudley has said that further aid is "likely to be warranted."
Also Friday, Labor estimated employers cut 366,000 more jobs than was reported in the year leading up to March 2010. A final estimate will be issued in February.
Even without that likely revision, at 2010's sluggish pace payrolls wouldn't hit their pre-recession peak until March 2020.
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