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Shutdown, what shutdown?

By Mark Hamrick · Bankrate.com
Friday, November 8, 2013
Posted: 1 pm ET

At first glance, the Labor Department's October jobs report shows little impact from the 16-day partial government shutdown. Employers were hiring more aggressively than the previous month. The unemployment rate went up only slightly, to 7.3 percent in October, as federal workers were furloughed. And they've since returned to work, with back pay, so the work stoppage shouldn't affect the November jobs report.

Altogether, the economy added some 204,000 jobs last month. That includes 53,000 in the leisure and hospitality segment with another 44,000 in the retail trade. The report indicates that employment in the federal government declined by 12,000, with 94,000 jobs lost there over the previous 12 months.

It was a surprising report given the length of the shutdown. And despite the rosy numbers, it appears to have raised as many questions as answers.

How much did the shutdown hurt the economy?

With October payrolls looking better than expected and the previous two months of hiring numbers revised higher, a case can be made for an improved outlook. Chief Economist Scott A. Anderson with Bank of the West wrote in a note, "The U.S. economy may have had more momentum than at first assumed due to the drop in consumer confidence and pessimistic headlines coming out of Washington DC." Similarly, ClearView Economics President Ken Mayland joked, "Maybe the government should be shut down more often!"

Yet, before the release of the jobs report, The Conference Board said consumer confidence tumbled in October. That has, in turn, raised fears that the holiday shopping season could take a hit. Within the employment reading, labor force participation, which is a gauge of the number of people looking for work, declined to the lowest in decades.

Even the White House, which typically would trumpet a report's most positive aspects, seemed to downplay the latest reading. Jason Furman, chairman of the Council of Economic Advisers, said in a statement that "there should be no debate that the shutdown and debt limit brinksmanship inflicted unnecessary damage on the economy in October." Similarly, before the report, Labor Secretary Thomas Perez told Bankrate in a video interview that uncertainty was hurting the job market.

What about the Fed?

Will the jobs report be enough to convince the Federal Reserve to begin winding down monthly asset purchases?

The risk of economic damage from the federal budget stalemate was one factor that seemed to justify the Fed's continued policy of pumping $85 billion a month into the economy. But what if the damage is less than feared?

Sterne Agee Chief Economist Lindsey Piegza wrote in a report, "Certainly the Hawks on the Fed will point to recent economic reports as reason enough to begin rolling back monthly bond purchases by year-end. But not all developments have been positive." One ongoing risk remains: a series of looming new deadlines involving the federal budget and the debt ceiling, both early in 2014.

Similarly, Mesirow Financial Chief Economist Diane Swonk said, "Look for Fed Chairman Ben Bernanke to use the December news conference to solidify the Fed's commitment to being accommodative by holding short-term rates low for an even longer time than previous(ly) thought."

Swonk is betting that the Fed does start to take its foot off the gas pedal in March. By then Janet Yellen will likely be at the helm of the Fed, succeeding Bernanke.

Follow me on Twitter: @hamrickisms.

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